Prospects for a rebound in economic activity in 2024 have been boosted after the business cycle indicator in South Africa rose for the third month in a row on the back of recovery in the energy sector.
Data from the South African Reserve Bank (Sarb) yesterday (TUES) showed that the composite leading business cycle indicator rose by 0.4% month-on-month in August following a 0.1% rise in July.
This marked the third consecutive month of economic expansion, albeit mild, as six of the 10 available component time series showed growth, counterbalancing declines in the remaining four.
The Sarb said the largest positive contributors were an increase in the average hours worked per factory worker in the manufacturing sector and an improvement in the RMB/BER Business Confidence Index.
The increase in the average hours worked per factory worker in the manufacturing sector comes as Eskom continues to improve its generation capacity with the return of units.
However, the decelerations in the six-month smoothed growth rates of job advertisement space and real M1 money supply were the largest negative contributors to the print.
The composite leading indicator is designed to provide early signals of turning points in business cycles showing fluctuation of the economic activity around its long term potential level, and usually has a six months lag.
On an annual basis, the leading indicator fell 5.3% year-on-year in August, a continuous decline from the 7.8% and 9.0% year-on-year contraction in July and in June, respectively, as the base effects are waning from a previous high base of a year ago.
Investec chief economist Annabel Bishop said this will be the case too for the US leading indicator over the next few months, seeing its year-on-year contractions diminish as statistical base effects wear out.
“Overall, the latest South African leading indicator reading is positive, hinting at a faster activity for the first half of 2024. In the US, in contrast, a slowing in economic activity is seen to be signalled by its leading indicator for the first half of 2024,” Bishop said.
“However, the US leading indicator also signalled a very strong third quarter of 2023 US GDP contraction, given the lags involved, and instead the third quarter US GDP growth is widely expected to come out at a rapid 4.5% quarter-on-quarter.”
The Sarb has already forecast that gross domestic product (GDP) in South Africa will rebound to 1.0% in 2024, up from the expected 0.7% in 2023, due to less severe power cuts and
Electricity Minister Dr Kgosientsho Ramokgopa yesterday told Parliament that they were restoring Eskom to higher levels of operational efficiency and looking into transmission financing options to expand, and strengthen the grid to support South Africa’s new energy generation sources and guarantee energy security.
Ramokgopa said the generation performance has continued to improve, rising from a base of 27 410MW to 28 883MW in October, with generation capacity breaching the 30 000MW mark last week, largely buoyed by the return to service of Kusile Units 3 and 1 over the past month.
“This Improved generation and lower-than-projected demand has allowed for an exponential increase in planned outages or “good maintenance.” The increased planned outage means that we are improving the overall performance capacity of the fleet, improving reliability and efficiency, and steadily ensuring we navigate to an equilibrium between demand and supply, buffered by a healthy reserve margin,” Ramokgopa said.
“There is an opportunity in every crisis and we have chosen to seize the opportunity within the life of the energy crisis. To this end, we seek to broaden our industrial base, create new skills and attain technology transfer.
“We are working with relevant ministries and stakeholders to create quality jobs by localising manufacturing of key equipment associated with the renewable energy complex. Working with private sector players, we are pursuing opportunities presented by new energy frontiers, such as green hydrogen, to position South Africa as a major global renewable energy player.”