Business activity fell slightly in February, after an uptick in January, with decreases in six of the 10 components outweighing increases in the remaining four, the SA Reserve Bank said on Tuesday.
The Bank’s composite business cycle indicator, compiled with the Bureau for Economic Research, examines the direction in which real economic activity is moving. It is a robust signal for business cycle recoveries and downturns over the next six months.
The February posting shows economic activity decreased by 0.1% month on month, from an increase by 1% in January, rebounding from a downwardly revised 0.3% fall in December. The January uptick signified a positive change in direction from the previous month, after two consecutive increases of 1.3% and 0.2% month on month for November and October, respectively.
The composite business cycle indicator is designed to provide early signals of turning points in business cycles showing fluctuation of the economic activity around its long-term potential level.
It is calculated on the basis of the following: building plans approved, new passenger vehicles sold, commodity price index for main export commodities, index of prices of all classes of shares traded on the JSE, job advertisements, volume of orders in manufacturing, real M1, average hours worked per factory worker in manufacturing, interest rate spread, composite leading business cycle indicator of the major trading-partner countries, business confidence index and gross operating surplus as a percentage of GDP.
Reserve Bank data shows that the largest detractors were a decrease in the number of residential building plans approved, which turned from a positive contributor to the largest detractor in February, and a deceleration in the six-month smoothed growth rate of job advertisement space.
The largest positive contributors were an increase in the US dollar-denominated export commodity price index and a widening in the interest rate spread.
Nedbank senior analyst Jones Gondo told Business Day that the latest print shows the balance of risks weighing on expectations in the economy, and that the bias is now tilting towards the downside in terms of domestic economic activity.
“This is consistent with the fact that we are currently in an interest rate hiking cycle at home and abroad — especially among our major trading partners — amid heightened inflation expectations due to persisting supply-side shocks.”
“Moreover, the usual structural bottlenecks to investment-led growth such as energy supply constraints and inefficient port and logistics infrastructure limit any upside potential in this cycle. Consequently, we expect a further deceleration in the index in coming surveys,” said Gondo.
FNB chief economist Mamello Matikinca-Ngwenya said even though the indicator remained in positive territory — at 127.2 from 127.3 in January — economic recovery remains fragile amid geopolitical tension, the rising cost of living, load-shedding and capacity constraints.
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