Economic activity dropped on an annual basis in November, affected by rolling blackouts, falling business confidence and an economic slowdown in SA’s key trading partners.
The Reserve Bank’s composite leading business cycle indicator released on Tuesday showed that economic activity in November fell 2.8% compared to the same time in 2021.
On a monthly basis, the indicator showed a slight rise from October’s 123.0 points, increasing 0.1% to 123.1 points in November.
The Bank’s composite leading business cycle indicator measures economic activity and offers a projection of SA’s economic growth cycle for the next six to 12 months. It captures future economic growth trends where a decline signifies a possible contraction in months to come and an increase shows movement towards economic growth.
The indicator is calculated on the basis of building plans approved; new passenger vehicles sold; the commodity price index for main export commodities; an index of prices of all classes of shares traded on the JSE; job advertisements; volume of orders in manufacturing; real money supply (comprising currency, demand deposits and other liquid deposits such as savings deposits); average hours worked per factory worker in manufacturing; and interest-rate spread.
Reserve Bank data showed mixed results, with four of the 10 available component time series posting positive readings and outweighing decreases in five components, while one component remained unchanged.
The largest positive contributors were time series for the number of new passenger vehicles sold, as well as the volume of orders in manufacturing.
The Bank said the largest negative contributors were a narrowing of the interest-rate spread and a decrease in SA’s export commodity price index denominated in dollars.
Investec chief economist Annabel Bishop said the indicator also showed that there was a high risk of slowing economic activity in SA at the start of the second half of 2023 — a time when the global economy is expected to move towards recovery.
Bishop said even though the global recovery is expected to have a positive effect on SA’s economy, “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.”
Reserve Bank data shows that weakness in SA’s electricity capacity negatively affected the country’s leading indicator and, by extension, economic growth.
Eskom’s energy availability factor fell from the usual 70s to below 60 in 2022 and now hovers at about 50. The power utility also had to face vandalism of the electricity units, along with theft and malfeasance.
“And confidence has waned, particularly as some state officials show different views. Looking forward, much will depend on SA finally removing strangling legislation so the private sector sees a marked increase in the ease of doing business, instead of facing a high regulatory burden, which impedes investment in SA, both foreign and local,” Bishop said.
Correction: January 25 2023
A previous version of this article incorrectly stated that the Reserve Bank’s composite leading business cycle indicator was compiled with the Bureau for Economic Research. The Reserve Bank calculates the index independently from the BER.
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