The South African Reserve Bank's (Sarb's) composite leading business cycle indicator remained at modest levels, driven by a decline in the export commodity price index and a deterioration in business confidence. File Photo: IOL

JOHANNESBURG – The South African Reserve Bank's (Sarb's) composite leading business cycle indicator remained at modest levels, driven by decline in the export commodity price index and a deterioration in business confidence.

The indicator dipped 0.1 percent month-on-month to 103.8 in August from 103.9 in July. 

Sarb said decreases in five of the 10 available component time series marginally outweighed increases in the remaining five.

It said the largest negative contributions came from a decrease in the export commodity price index (US dollar based) and a deterioration in the Bureau of Economic Research’s Business Confidence Index. 

South Africa's business confidence slid to its lowest this year in the third quarter, dragged lower by a slump in sentiment in the manufacturing sector.

Job advertisements, the composite leading business cycle indicator for South Africa's major trading-partner countries, and average hours worked per factory worker in manufacturing also weighed down the indicator. 

Sarb said the largest positive contributions came from an increase in the number of residential building plans approved and a widening in the interest rate spread. 

Investec chief economist Annabel Bishop said that long-time mismanagement of the economy had affected the  business cycle.

“The Sarb’s business cycle remains in a downward phase as lengthy, lagged effects of the deteriorating economic, fiscal, policy and political environment over the majority of this decade continues to suppress the business cycle, and so negatively affect confidence, employment and growth,” Bishop said.

“The repair to the damage which has been done to the business and investment environment (and so sentiment) stretching from the global financial crisis to around a couple of years ago is crucial, particularly at Sars, and in both state-owned enterprises and public finances; but it will take a substantial amount of time to effect. 

"However, what is key is that this work has begun, and that it will deliver dividends to economic growth, and so employment, down the line.”

Bishop said business cycle should start seeing some uptick in the longer run, bar any upper shocks in the global economic activity. 

“South Africa is likely seeing its business cycle begin to trough, and, while this may prove a fairly patchy and lengthy experience, the business cycle should eventually begin to notably turn up in South Africa, absent a marked further down in global economic activity, and clearly also barring a global recession,” she said.

“While remaining institutional strengths in South Africa provide some basis for an economic recovery, the highly focused work currently being undertaken by key leaders in government to improve the ease of doing business in South Africa will support future economic growth.”

BUSINESS REPORT