South African businesses experienced an uptick in activity in July as the magnitude of the economic downturn moderated on the green shoots due to the easing of the lockdown, but the absence of structural reforms remains a concern.
South African businesses experienced an uptick in activity in July as the magnitude of the economic downturn moderated on the green shoots due to the easing of the lockdown, but the absence of structural reforms remains a concern.

Uptick in activity as more green shoots emerge

By Siphelele Dludla Time of article published Sep 23, 2020

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JOHANNESBURG - South African businesses experienced an uptick in activity in July as the magnitude of the economic downturn moderated on the green shoots due to the easing of the lockdown, but the absence of structural reforms remains a concern.

The SA Reserve Bank (SARB) said yesterday that its composite leading business cycle indicator lifted further by 2.6percent on a month-on-month basis in July, showing the economy was on the way to recovery.

SARB said the indicator rose to 99.9points from 97.3points in June.

In May, the indicator reached 93.9points as the level of activity plunged on lockdown restrictions in the second quarter.

July was the first month that showed a month-on-month uptick since November last year.

The indicator provides early signals of turning points in business cycles showing fluctuation of the economic activity around its long-term potential level.

The indicator has been fallen for 20 consecutive months, most recently contracting 9.1percent in June.

SARB said increases occurred in eight of the 10 available component time series, while the remaining two component time series decreased.

The largest positive contributions to the movement were increases in the number of residential building plans approved and in the RMB/BER Business Confidence Index.

The deceleration in the six-month smoothed growth rate in the real M1 money supply and in the 12-month percentage change in job advertisement space were the main negative contributors.

The composite coincident business cycle indicator increased 3.7percent on a month-to-month basis in June, supported by increases in retail and new vehicle sales as lockdown restrictions were gradually lifted.

The sentiment picked up as all business sectors in the latest RMB/BER Business Confidence Index showed a recovery, with the index rebounding to 24 points in the third quarter after falling from 18 to an all-time low of five in the second quarter.

The composite lagging business cycle indicator increased 2.1percent on a month-to-month basis in June.

SARB said the impact of the lockdown caused the unusual outcomes in the component time series of the composite lagging indicator, which should rather be interpreted as outliers.

Investec’s chief economist, Annabel Bishop, said the positive turn in June was indicative of the green shoots of recovery in the economy from the second quarter’s -51percent collapse.

“Indeed, the South African economy is not expected to return to the level of economic activity experienced in the first quarter of 2020, absent substantial measures to invigorate and support economic activity,” Bishop said. “We continue to expect an expansion of 25.9 percent quarter-on-quarter in the third quarter, yielding a contraction of -12.1percent year on year.”

BUSINESS REPORT

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