Stronger-than-anticipated rebound may be on the cards for SA economy
JOHANNESBURG - South Africa's economy could experience a stronger-than-anticipated rebound in the third quarter as green shoots emerge in business activity after the easing of Covid-19 lockdown regulations.
The SA Reserve Bank (SARB) said yesterday that the composite leading business cycle indicator rose for a third consecutive month in August.
The indicator increased further by 3.7 percent on a month-to-month basis in August as activity levels in the economy continued to rebound following the extended lockdown.
The largest contributions to the rise in the indicator were increases in the US dollar-denominated South African export commodity price index and the RMB/BER Business Confidence Index.
The leading indicator provided early signals of turning points in business cycles showing fluctuation of the economic activity around its long-term potential level.
SARB said the composite coincident business cycle indicator rose further by 5.2 percent on a month-to-month basis in July, supported by increases in industrial production as well as retail and new vehicle sales. The composite lagging business cycle indicator eased slightly by 0.2 percent on a month-to-month basis in July, indicating the easing of cost pressures.
SARB said that the effect of the extended lockdown on nominal unit labour cost measurement outcomes superficially suggested that labour market conditions were becoming tighter. “However, this outcome is not coherent with the actual stance of the labour market at present with notable job losses and falling wages,” SARB said.
South Africa relaxed the lockdown restrictions further to alert level 2 in mid-August on account of declining daily Covid-19 cases after the economy plummeted by an annualised 51percent in the second quarter.
Investec’s chief economist Annabel Bishop said the positive growth rates in June and July showed that the green shoots of recovery were strengthening.
Bishop said although only two months’ worth of data were generally available for the third quarter currently, evidence from other incoming data was showing that the third quarter rebound might pleasantly surprise the markets.
“South Africa’s industrial production, retail and wholesale sales are evidencing marked rebounds from the second quarter, but the pace of economic activity is faster in some areas of the domestic economy than in others, as the recovery proves uneven,” she said.
Bishop said while economic activity had lifted quite noticeably in the past three months, pent-up demand would have boosted activity, as will statistical base effects from the second quarter’s lows.
“The economic recovery is likely to slow into the fourth quarter, from around 30percent quarter-on-quarter in the third quarter to around 10percent quarter-on-quarter.”
The government has previously said it expected the economy to decline by a significant 7.2 percent this year, the largest contraction in 90 years.
Investec has maintained that the economy would decline further than the government's projection to 10percent this year.