Economic activity picking up, but still ‘deeply negative’

JOHANNESBURG - South Africa’s economic activity is slowly picking up, with the easing of lockdown restrictions, according to data from the SA Reserve Bank.

The central bank on Tuesday released its latest set of business cycle indicators.

In a weekly outlook report ahead of the release, FNB economists said they expected an improvement in the June data, but that it would remain “deeply negative” as the operating environment “remains challenging,” despite the easing of restrictions.

The leading indicator, which signals changes in the economy before they happen, increased by 2.7 percent in June as seven of the nine components increased.

“The largest positive contributions to the movement in the composite leading business cycle indicator in June were increases in the number of residential building plans approved and in new passenger vehicles sold,” the Reserve Bank said.

The coincident indicator – which gives an early reading on the impact on GDP – for May declined by 0.8 percent on a month-on-month basis from April. It indicates that May saw “the largest annual collapse in GDP on record,” said Annabel Bishop, Investec chief economist.

“We continue to expect that South Africa’s GDP contraction overall for 2020 will be the most severe on record, likely worse than -10 percent y/y,” she said in a note issued after the data release.

April’s revised coincident indicator was 30.7 percent, revised down from 26.8 percent, compared to the previous year. May’s data also reflects a 31.3 percent decline from the previous year.

These are the two largest declines on record, since the Reserve Bank tracking this data from 1960, Bishop said.

- FIN24.