The Reserve Bank’s six-month gauge measuring economic performance contracted for the first time since May, pointing to a decline in economic activity.
The Bank’s composite leading business cycle indicator offers a projection of SA’s economic growth cycle for the next 6-12 months. It also 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 Bank said on Tuesday that the indicator fell 0.4% month on month in November following an upwardly revised 0.5% increase in the previous month, as decreases in five of the 10 available component time series outweighed increases in the remaining five.
The Reserve Bank said the largest negative contributors were a narrowing of the interest-rate spread and a deceleration in the six-month smoothed growth rate of job advertisement space.
Key positive contributors were increases in both the average hours worked per factory worker and the volume of orders in the manufacturing sector.
SA continues to experience a number of economic challenges including sticky inflation and currency weakness. While inflation is starting to trend lower with economists believing it will fall to 5.2% in December compared to November’s 5.5% and October’s 5.9%, it remains well above the 4.5% midpoint mark preferred by the Bank.
The downward trend in global food inflation continued in December driven by expectations of higher world food production against the backdrop of weaker demand with a good summer rainfall to boot, but the rand remains fragile.
Nedbank chief economist Nicky Weimar said the currency weakened slightly since the November monetary policy meeting, “and the outlook is still relatively bleak given the country's worsening fiscal position and concerns over the outcome of the upcoming general election”.
Weimar said structural constraints also remained a worry.
The effects of load-shedding on prices were expected to ease gradually as more consumers and businesses switched to alternative energy sources, Weimar said.
“But the worsening congestion and disruptions to road, rail and port services will keep domestic cost structures elevated and prevent a faster deceleration in price pressures,” she said.
Weimar also warned that the country’s persistent structural constraints had elevated production and operating costs, and would continue to do so.
“On the plus side, power shortages have subsided since the last MPC meeting, with only 2,247GW removed from the grid. Over the fourth quarter, 3,256GW were shed compared to 5,942GW the previous quarter and 6,021GW in the fourth quarter of 2022,” she said.
She added the gradual improvement continued in January with only 679GW shed in the first 17 days of this year compared to 1,516GW over the same period in 2023.
The reasons for the reduction in load-shedding include fewer unplanned breakdowns over the quarter, the return of three Kusile units to service, the addition of an extra unit and less demand for energy, she said.
The decline in energy demand reflects a shift to renewable power sources, particularly rooftop solar, among businesses and households.
“Should this reduction in load-shedding and the shift to alternative energy sources persist on a more sustained basis, it would significantly increase domestic growth prospects and reduce the upside risk posed to inflation,” Weimar said.
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