SARB sees rise of 0.7% in business cycle guide
THE SOUTH African Reserve Bank (SARB) said yesterday that its composite leading business cycle indicator rose by 0.7 percent month-on-month in March.
The change in the indicator was driven by the interest rate spread on 10-year government bonds, an acceleration in the 12-month percentage change in job advertisements, and the volume of orders in the manufacturing industry.
The SARB said the indicator lifted to 104.4 points from 103.3 points in February as increases in five of the eight component time series outweighed decreases in the other three.
The dollar-denominated export commodity price index and a deceleration in the number of new passenger vehicles sold made the largest negative contributions to the indicator.
The SARB said coronavirus-related global and domestic risk aversion, as well as the lockdown restrictions, caused distortions to some of the component series of the leading indicator in March.
“The supply and demand shocks caused by the Covid-19 pandemic resulted in unusual behaviour in some component time series, and because of the exogenous nature of the pandemic, it is, therefore, not possible for the composite leading business cycle indicator to have predicted its impact in advance,” it said.
The indicator is regarded as the projection of the country’s economic growth for the year ahead. The March figures showed that gross domestic product (GDP) was on track for a contraction.
Investec chief economist Annabel Bishop said the data used was for the first quarter and did not capture the worsening conditions of the extended lockdown, globally and domestically.
Bishop said the extension of the lockdown put GDP at risk of contracting by up to 10 percent year-on-year, if not more, this year.
“With the current progression of one month for each level, July and August will see some continued restrictions on economic activity, and the recovery in the third quarter is likely to be much more subdued than originally thought,” Bishop said.
“We previously expected economic growth of -4.8 percent year-on-year for 2020, but now believe it could come out closer to between -8 percent to -10 percent, if not worse.”
Bishop said much would depend on how the opening up the economy progressed.