THE composite leading business cycle
indicator fell to 90.9 points in April from 91.7 points in March, the
South African Reserve Bank reported on Tuesday.
This raises the fear of recession this year and may prompt the Reserve Bank to keep interest rate increases on hold.
The central bank’s leading index, which was set to 100 in 2010, reached a maximum of 102.1 points in February 2011. It has been in decline since November 2014 when it reached 98.4.
The central bank reported March’s composite coincident business cycle indicator was 116.6, slightly lower than February’s 116.7. March’s lagging indicator was 101, slightly higher than February’s 100.3.
The only positive contributor to the central bank’s leading indicator, which attempts to predict where the economy is heading, was the commodity price index for South African produced export commodities in April.
Nine of the leading indicator’s components made negative contributions. These included money supply as measured by the Reserve Bank’s "Real M1" figure and the interest rate spread between 10-year government bonds versus 91-day Treasury bills.
The leading indicator was also weighed down by the average hours worked per factory worker in manufacturing, the business confidence index and the volume orders in manufacturing provided by Stellenbosch University’s Bureau for Economic Research.
The central bank also looks at the number of new cars sold, job advertisements in the Sunday Times and the number of building plans approved.
Investec economist Annabel Bishop said in a note on Tuesday the downward trend of the leading indicator following the 1.2% drop in first quarter gross domestic product (GDP) was further evidence SA’s economy is potentially in the first stage of a recession this year. Investec estimated the risk of recession in 2016 at 40%
"The recovery is likely to be U shaped, not V shaped as occurred in 2009, as the global economy sees only a slow return to trend, with secular stagnation an overriding risk currently. Low confidence levels translate into low investment and employment, so depressing incomes and personal expenditure," she said.
The weakness in the leading indicator ties in with the very depressed levels of business confidence prevailing in SA. The reading of 32 means 68% of business owners are dissatisfied with current conditions, resulting in weak private sector fixed investment growth and low employment. Higher interest rates will depress the situation further.
The pace of the fall in the leading indicator has accelerated since 2015, with April’s -5.5% year-on-year the fastest drop since 2009, the last severe recession in SA. At the start of the second quarter of 2016, Investec has revised its 2016 GDP growth forecast down from 1% for the year, to 0.7% as the weakness in global demand intensified, we it is now in the process of revising its forecast for this year down again, to close to zero.
Bishop said unlike in the 2009 recession when interest rates were falling, this year they have been rising.
"The SARB may find itself in the position of having to reverse recent repo rate hikes if activity falls off materially further," she said.
by Robert Laing/BDlive
This raises the fear of recession this year and may prompt the Reserve Bank to keep interest rate increases on hold.
The central bank’s leading index, which was set to 100 in 2010, reached a maximum of 102.1 points in February 2011. It has been in decline since November 2014 when it reached 98.4.
The central bank reported March’s composite coincident business cycle indicator was 116.6, slightly lower than February’s 116.7. March’s lagging indicator was 101, slightly higher than February’s 100.3.
The only positive contributor to the central bank’s leading indicator, which attempts to predict where the economy is heading, was the commodity price index for South African produced export commodities in April.
Nine of the leading indicator’s components made negative contributions. These included money supply as measured by the Reserve Bank’s "Real M1" figure and the interest rate spread between 10-year government bonds versus 91-day Treasury bills.
The leading indicator was also weighed down by the average hours worked per factory worker in manufacturing, the business confidence index and the volume orders in manufacturing provided by Stellenbosch University’s Bureau for Economic Research.
The central bank also looks at the number of new cars sold, job advertisements in the Sunday Times and the number of building plans approved.
Investec economist Annabel Bishop said in a note on Tuesday the downward trend of the leading indicator following the 1.2% drop in first quarter gross domestic product (GDP) was further evidence SA’s economy is potentially in the first stage of a recession this year. Investec estimated the risk of recession in 2016 at 40%
"The recovery is likely to be U shaped, not V shaped as occurred in 2009, as the global economy sees only a slow return to trend, with secular stagnation an overriding risk currently. Low confidence levels translate into low investment and employment, so depressing incomes and personal expenditure," she said.
The weakness in the leading indicator ties in with the very depressed levels of business confidence prevailing in SA. The reading of 32 means 68% of business owners are dissatisfied with current conditions, resulting in weak private sector fixed investment growth and low employment. Higher interest rates will depress the situation further.
The pace of the fall in the leading indicator has accelerated since 2015, with April’s -5.5% year-on-year the fastest drop since 2009, the last severe recession in SA. At the start of the second quarter of 2016, Investec has revised its 2016 GDP growth forecast down from 1% for the year, to 0.7% as the weakness in global demand intensified, we it is now in the process of revising its forecast for this year down again, to close to zero.
Bishop said unlike in the 2009 recession when interest rates were falling, this year they have been rising.
"The SARB may find itself in the position of having to reverse recent repo rate hikes if activity falls off materially further," she said.
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