The economic outlook in South Africa deteriorated further in February as sentiment among businesses turned sour about the prospects over the next six months on the back of disruptive power cuts.
The composite leading business cycle indicator, a measure of early signals of turning points in business cycles, fell by 0.7% month-on-month in February 2023, slipping further from an upwardly revised 0.2% fall in January.
The South African Reserve Bank (SARB) said this was the third consecutive month of decline as eight out of the 10 available component time series decreased.
This means that the leading indicator reading for the first two months of the first quarter of 2023 fell by 2.4% versus the first two months of the fourth quarter of 2022, indicating a further slowdown in the business cycle in the fourth quarter of 2023, given the six-month lag.
The SARB said February’s leading indicator reading was impacted by lower volumes of orders and average hours worked per factory worker in the manufacturing sector, with load shedding a key constraint.
The largest negative contributors were a deceleration in the six-months smoothed growth rate of job advertisement space, and the decline in South Africa’s US-dollar denominated export commodity price index.
The composite leading business cycle indicator for South Africa’s major trading-partner countries was also a negative contributor.
The business confidence index compiled by the Bureau for Economic Research was also a firm negative contributor in February as insufficient electricity, rail and port capacity contributed to negative sentiment.
Job advertisements also fell, as did sales of new passenger vehicles, with just two contributors rising, money supply (M1) and building plans approved.
February’s leading indicator reading was impacted by lower volumes of orders and average hours worked per factory worker in the manufacturing sector, with load shedding a key constraint.
Investec chief economist Annabel Bishop warned that the average of Stage 6 or higher load shedding forecast this year would be devastating for growth prospects.
Bishop said the economy would risk falling into recession for the year, with other productive factors, such as freight and logistics, also having weakened.
“The productive capacity of South Africa’s economy will continue to be a key determinant of its economic growth, and so the risks for the economy are to the downside for this year, as new electricity generation and transmission takes time to come on board, particularly of the scale South Africa needs,” Bishop said.
“Greater private sector participation to aid the government in resolving the electricity crisis is envisaged, along with private sector involvement in areas of rail and port transport as its severe deterioration has substantially reduced export capacity and so economic growth.”
On the other hand, increases were seen in the number of approved residential building plans and six-months smoothed growth rate in the real M1 money supply.
The composite coincident business cycle indicator increased by 0.5% in January, due to increases in the retail and new vehicle sales as well as industrial production indices.
The composite lagging business cycle indicator increased by 0.3% in January.
BUSINESS REPORT