Composite leading business cycle indicator has slightly decelerated
BUSINESS activity in South Africa decelerated slightly in February amid interest rate hikes and heightened inflation expectations, the composite leading business cycle indicator showed on Tuesday.
Economists flagged that it indicated growth was slowing in South Africa.
The SA Reserve Bank (SARB) said yesterday that the composite leading business cycle indicator fell slightly by 0.1 percent to 127.2 index points from 127.3 points in January.
The SARB said decreases in six of the 10 available component time series outweighed increases in the remaining four.
The largest detractors were a decrease in the number of residential building plans approved and a deceleration in the six-month smoothed growth rate of job advertisement space.
The largest positive contributors were an increase in the US dollardenominated export commodity price index and a widening in the interest rate spread, SARB said.
Jones Gondo, a senior research analyst: credit, Nedbank Corporate and Investment Banking, said the index was still up 3 percent compared to the same period last year, but the trend was one of deceleration.
“The main shift between the January and February surveys was that the number of residential building plans approved turned from a positive contributor to the largest detractor in February,” he said.
Gondo said between surveys, the largest positive contributor to the business cycle remained the commodity price index for South Africa’s main export commodities, but this would not be fully met by increased production and export volumes, which had backward linkages to job creation and other positive benefits for the economy.
“The leading index is a robust signal for business cycle recoveries (and downturns) over the next six months.
“We think that the latest print shows the balance of risks weighing on expectations in the economy and that the bias is now tilting towards the downside in terms of domestic economic activity,” he said.
This was consistent with the fact that South Africa was currently in an interest rate hiking cycle at home and abroad amid heightened inflation expectations due to persisting supplyside shocks, he said.
“Moreover, the usual structural bottlenecks to investment-led growth (such as energy supply constraints and inefficient port and logistics infrastructure) limit any upside potential in this cycle. Consequently, we expect a further deceleration in the index in coming surveys,” Gondo said.