The Reserve Bank’s six-month gauge measuring economic performance posted a third month of expansion in August, pointing to a mild improvement in economic activity ahead of the medium-term budget policy statement (MTBPS) on November 1.
The composite leading business cycle indicator, which offers a projection of SA’s economic growth cycle for the next six to 12 months, rose by 0.4% in August after a 0.1% increase in the previous month, the Bank said on Tuesday.
This as the country continues to experience a number of economic setbacks including inflation trending higher, currency weakness, rising debt and lower capital flows.
The Bank recently pointed out that sustainable fiscal positions would help reduce the high interest burdens many economies face, lowering sovereign credit default risk and term premiums.
Six of the 10 available component time series showed growth, outweighing declines in the remaining four categories.
Bank data shows the largest positive contributors were an increase in the average hours worked per factory worker in the manufacturing sector and an improvement in the RMB/BER Business Confidence Index.
The main laggards were decelerations in the six-month smoothed growth rates of job advertisement space and real M1 money supply.
The indicator should be tracked by finance minister Enoch Godongwana and his team when forecasting long-term economic growth projections.
Earlier this year, it indicated growth signals at a time when recession concerns formed a stronger narrative on the country’s economic strength as suggested by monthly indicators and the global outlook.
It is also in line with recent upward GDP revisions by the Bank along with the latest Reuters consensus, whose economic growth forecasts were increased from 0.4% to 0.7% for 2023, citing continued spending by households, public corporations and the government.
“Overall, the latest leading indicator reading is positive, hinting at faster first-half 2024 activity,” Investec chief economist Annabel Bishop said.
On a year on year basis, Reserve Bank data shows the indicator contracted 5.3%. This was less than the 7.8% contraction in July and 9% in June as the high base effects of the same period a year ago wane.
The RMB markets research team was less positive, however, noting that despite the stabilisation in July, and again in August, the broader trend of the leading indicator and particularly the year-on-year growth rate remains firmly downward.
“Domestic economic prospects are weak, which is unsurprising given the country’s ongoing economic crises amid a slowing global growth environment and an approaching fiscal cliff,” they said.
Still, less severe load-shedding, easing inflation, the end of the interest rate hiking cycle and a resilient group of core consumers should help support the economy at the margin, they added.
While the longer term economic projections are seen as positive on a monthly basis, the country’s “still-low” growth prospective is still a cause for concern.
Investec treasury economist Tertia Jacobs said the current fiscal year could be seen as the “darkest period before the dawn”.
Jacobs said the country’s sociopolitical environment makes the National Treasury’s ability to enact spending reforms more challenging.
“In fact, the considerable increase in SA’s fiscal risk premium and the steepening of the SA government bonds yield curve in 2023 are evidence of the fiscus’s deterioration,” she said.
“The two domestic drivers of this include the energy and transport logistics crises, as well as the negative feedback loop created by underperforming SOEs and government bailouts, which together with a drop in commodity prices and a spike in US Treasury yields internationally have put additional strain on an already stressed economy and funding costs.”
Jacobs said Investec doesn’t foresee Godongwana cutting socio-economic expenses such as the social relief of distress grants ahead of elections next year. That, along with the increase in the public sector wage bill in the current fiscal year, would outweigh possible savings and underspending and lead to fiscal slippage.
“Over the medium term, the carry through effect from the unbudgeted wage increase together with the evolvement of social spending, including the size and shape of the Social Relief of Distress grant, and the ongoing financial and operational distress at SOEs, are major risks to fiscal sustainability.”
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