The Reserve Bank’s release on Tuesday of its leading business cycle indicator is expected to remain in positive territory, but FNB chief economist Mamello Matikinca-Ngwenya warns that domestic recovery will remain fragile amid geopolitical tensions, the rising cost of living, load-shedding and capacity constraints.
The composite leading business cycle indicator in SA increased 1.0% from a month earlier in January 2022, rebounding from a downwardly revised 0.3% fall in December 2021, as four of the 10 available component time series outweighed decreases in the remaining six.
The main contributors to the monthly growth were higher export commodity prices and an increase in the number of residential building plans approved.
But job posts and manufacturing demand orders did not fare well, detracting from the leading indicator. Matikinca-Ngwenya said in general the monthly impulse in the leading indicator is in line with the prevailing recovery in economic activity after the civil unrest.
Producer price inflation (PPI) figures for March will be published on Thursday. Producer prices increased 1.1% month on month in February. This was the 21st consecutive monthly increase and was nearly two times higher than the February median increase of 0.6%.
Matikinca-Ngwenya said producer prices have increased 16% since May 2020.
“On an annual basis, producer prices increased by 10.5%, reflecting a further acceleration after increasing by 10.1% in January,” she said.
Investec economist Lara Hodes said Investec expects PPI to have eased to 10.2% in March, from 10.5% year on year previously on base effects.
But she warned that on a month-on-month basis, Investec anticipates a 1.0% rise, underpinned by a larger contribution from the coke, petroleum, chemical, rubber and plastic products grouping, in which fuel price dynamics are captured.
Hodes said food price inflation, another main component of the PPI basket, is also expected to remain elevated, exerting upward pressure on the headline outcome.
“Specifically, supply concerns have further been exacerbated by the geopolitical situation, leading to an increase in prices of a number of agricultural commodities and main inputs like fertiliser,” she said.
Private sector credit extension is forecast to have risen to 5.3% year on year in March, after February’s 3.6% year-on-year lift, which was supported primarily by a further pickup in corporate sector credit.
Hodes said the corporate sector, which was particularly affected by the stringent lockdown restrictions imposed during the height of the pandemic, is gaining momentum. However, she warned that stronger business confidence is needed to drive further notable investment.
“The hastened implementation of critical reforms drastically improving the ease of doing business in this country is imperative,” Hodes said.
The trade balance for March will also be published on Thursday. Analysts said they expect a further widening in the trade surplus in March to about R15.0bn, from R10.6bn in February.
The latest Absa manufacturing PMI survey found that exports remained positive in March benefiting from the recovery in the tourism and hospitality sector and normalising business conditions in general, but Hodes said heightened load-shedding remains a big risk to domestic production, while persistent geopolitical tensions globally worsening supply side challenges remain an impediment to international trade.
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