The SA Reserve Bank says the composite leading business cycle indicator increased 0.7 percent on a month-to-month basis in October. Photo: Supplied

JOHANNESBURG – The business cycle improved at the start of the fourth quarter as the indicators for October ticked up slightly, despite subdued trade conditions and consumer confidence.

The SA Reserve Bank (Sarb) on Wednesday said the composite leading business cycle indicator surprised on the upside, increasing 0.7 percent on a month-to-month basis in October. 

The indicator has contracted year-on-year for 12 consecutive months, most recently falling 1.5 percent in September, signalling that growth prospects were expected to remain historically low.

The central bank has maintained the view that South Africa was unlikely to see a material improvement in growth prospects heading into 2020 without meaningful structural reforms taking place. It has already cut its growth forecast for 2019 by more than half, from a gross domestic product of 1.5 percent forecast in February to 0.5 percent last month, as a result of weak fundamentals. 

In the leading indicator, Sarb said eight of the 10 available component time series increased, while two decreased.

The bank said the largest positive contributions to the movement came from an increase in the number of residential building plans approved and an improvement in the Business Confidence Index of the Bureau of Economic Research (BER). 

Building sector confidence edged up 3 points to 25 points in the fourth quarter, as calculated by the FNB/BER Building Confidence Index, supported by a lift in sentiment of both residential and non-residential builders.

In September, pipeline activity was somewhat subdued, with building plan approvals down 10.1 percent year-on-year, or R8.5 billion.

Sarb also said the BER Business Confidence Index, the number of new passenger vehicles sold, the volume of orders in manufacturing, and average hours worked per worker in manufacturing were also positive contributors to the print. 

The largest negative contributions came from a deceleration in the 12-month percentage change in job advertisement space and a decrease in the US dollar-based commodity price index for South Africa’s main export commodities.

The SA Chamber of Commerce expects that trade conditions will remain subdued in November and in negative territory, and decline over the next six months.

The Sarb last week said in its Quarterly Bulletin that South African households spent 1 percent less in the first nine months this year compared with last year, as consumers remain financially vulnerable, because of incomes increasing at lower rates, high levels of indebtedness and low savings rates.

Unemployment reached its highest rate in more than a decade in the third quarter, leaving South Africa with one of the highest unemployment rates in the world at 29.1 percent.

Meanwhile, the Sarb said the composite coincident business cycle indicator increased 0.2 percent on a month-to-month basis in September, while the composite lagging business cycle indicator decreased 1.1 percent in the same month.

BUSINESS REPORT