SA’s economic growth cycle will be in focus this week with the leading business cycle indicator expected to have declined in February while the effects of Covid-19 paint a grim picture of the country’s economic outlook.
The Reserve Bank’s leading composite business cycle indicator is expected to have decreased 0.7% in February from a 0.3% fall on a month-to-month basis, according to a Trading Economics forecast. The data is due on Tuesday.
The leading indicator shows a projection of SA’s economic growth cycle for the next six to 12 months. The indicator is based on a range of components including the number of approved building plans, job advertisement space, BER’s business confidence index, manufacturing order volumes and passenger vehicles sold.
Investec economist Kamilla Kaplan said in a note that the leading indicator reading for February “will be misleading as it will not be able to account for Covid-19 which caused the lockdown end March-April”.
Analysts said the effects of the national lockdown are likely to be reflected in economic indicators in the next few months including inflation, retail sales and the unemployment rate.
“The impact will be severe. Our GDP forecast is -5.7% in 2020 and there are still downside risks to that,” Old Mutual Investment Group chief economist Johann Els said. “There is still uncertainty about when the virus will peak; growth could be weaker for longer,” he said.
The Reserve Bank recently said it expects the economy to shrink 6.1% in 2020.
Els added that the mining sector may show quick recovery after a decision to ease lockdown regulations for the industry, to allow mining companies to resume operations at half capacity and ramp-up in the next weeks. The tourism industry may remain under pressure.
Kaplan said tourism and migration data for February will not encapsulate the effects of the coronavirus on tourism numbers. “However, travel from China, an important tourist destination for SA, should be markedly down as strict travel restrictions were imposed on the nation in early February, with a clampdown on travel to and from the country,” he said.
Stats SA has rescheduled the publication of some data due this month to mid-May as a result of the national lockdown. This includes the release of mining and manufacturing production for February.
“The lockdown presents negative consequences for SA’s economy as it will severely reduce the country’s productive capacities,” said FXTM senior research analyst Lukman Otunuga.
“Sectors from transport to manufacturing will be hard hit. Household consumption will also be affected due to uncertainty. There seems to be a disconnect over how badly the coronavirus will hit SA,” Otunuga said.
The pandemic, which has brought global economic activity to a near-standstill, has raised concern that the global economy may be headed for the worst economic slump since the Great Depression.
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