South Africa’s growth could face a period of stagnation in the second half of this year as economic activity is expected to slow down on global and domestic headwinds, in spite of the business cycle rebounding in November, 2022.
The composite leading business cycle indicator, a measure of early signals of turning points in business cycles rose slightly by 0.1% in November, rebounding from a 0.9% decline in October.
Data from the SA Reserve Bank showed that four of the 10 available component time series increased, outweighing decreases in five components, while one component remained unchanged.
The largest positive contributors to the November reading were an acceleration in the six-months smoothed growth rate in the number of new passenger vehicles sold, and an increase in the volume of orders in manufacturing.
On the other hand, the largest negative contributors were a narrowing of the interest rate spread and a decrease in the dollar-denominated export commodity price index.
In spite of this positive outcome, the leading indicator reading for the first two months of the fourth quarter (October and November) dropped by 1.1% compared to the first two months of the previous quarter.
This coincided with the period in which the country started suffering the worst bout of continuous power cuts as Eskom ramped up its load shedding to between Stage 4 and Stage 6, while the 12-day strike by Transnet workers severely impacted exports.
Investec chief economist Annabel Bishop said that the data remained mixed overall for November.
The leading indicator saw five negative contributors versus four positive ones and one unchanged, while the gross operating surplus as a percentage of GDP was unavailable for the calculation.
Bishop said the weakness in South Africa’s electricity capacity negatively impacted the leading indicator while Europe, a key trading partner for South Africa also saw its largest economy, Germany, essentially stagnate in the fourth quarter of 2022.
She said in a six-month period the leading indicator reading has, with gross domestic product growth, indicated a risk of slowing economic activity in South Africa at the start of the second half of 2023.
“However, the second half of 2023 is expected to see the global economy recover, which will have a positive impact on SA’s economy, although the ability of SA to take advantage of this will depend on its ability to improve its productive capacity which has been damaged by increased load shedding.
“So too, substantially improving rail and port capacity is imperative for strengthening exports and economic growth,” Bishop said.
Meanwhile, the composite coincident business cycle indicator eased by 0.6% in October due to a decrease in the industrial production index, but the composite lagging business cycle indicator increased by 1.6% in October.
BUSINESS REPORT