Composite leading business cycle indicator is on the rise
ECONOMIC activity was expected to pick up later in the year as early signals of turning points in business cycles by the South African Reserve Bank (SARB) indicated a slow start to 2021.
SARB said yesterday that its composite leading business cycle indicator increased 2.1 percent in January, rising the most since October 2020.
The leading indicator rose to 117.5 points from 115.1 points in December 2020. The SARB said the increases in four available component time series outweighed decreases in the remaining six.
It said the largest contributors were an acceleration in the 12-month rate of increase in job advertisement space.
An increase in the US dollardenominated South African export commodity price index also had a positive continuation to the print.
However, business confidence, the number of new passenger vehicles sold, the 10-year government bonds, and the volume of orders in manufacturing were a drag on the January print.
On a month-to-month basis, SARB said the rate of increase in the composite coincident business cycle indicator moderated to 0.3 percent in December 2020 on slower pace of increase in real gross value-added excluding agriculture.
The composite lagging business cycle indicator rose slightly by 1.1 percent on a month-to-month basis in December.
The leading indicator leads economic activity by around six months, and so the insight to the first quarter of 2021’s reading comes directly from the disruption in activity during the second quarter of 2020.
Investec chief economist Annabel Bishop said the harsh lockdown in the second quarter had a negative impact on the economy in this year’s first quarter given the lead time in business investment and planning.
Bishop said the first quarter got off to a very slow start, highlighting the uneven nature of economic activity on lockdown restrictions that were tightened in January.
She said February and March were expected record improvement in economic activity on the eased restrictions, though load shedding would have had a negative effect.
“Looking ahead, the leading indicator shows that the second and third quarter of 2021 will see a lift in economic growth, instead of the contraction detailed for the first quarter,” Bishop said.
“This lift in economic growth is so far indicated to continue into the fourth quarter on the basis of today’s leading indicator outcome for January.”
BUSINESS REPORT ONLINE