Leading business cycle Indicator Declines In March

27 May 2020 – The SA Reserve Bank’s leading business cycle indicator declined in March, ringing in 18 months of consecutive annual declines.

The leading indicator, which offers a projection of SA’s economic growth cycle for the next six to 12 months, declined 1.6% in March, a slightly slower rate of decline than February 2020’s revised -2.9%.

The Bank warned, however, that the Covid -19 pandemic has caused distortions in the gauge’s underlying data.

The leading indicator measures changes in a range of components over time, including the number of approved building plans, job-ad space, manufacturing order volumes and passenger vehicles sold

On a month-on-month basis, the gauge increased 0.7%, driven by increases in five of the eight available component time series, which outweighed decreases in the other three.

In its publication, the Bank noted that in March global and domestic risk aversion related to Covid-19 caused distortions to some of the component series of the leading indicator.

“The supply and demand shocks caused by the Covid-19 pandemic resulted in unusual behaviour in some component time series and because of the exogenous nature of the pandemic, it is therefore not possible for the composite leading business cycle indicator to have predicted its impact in advance,” the Bank said.

On March 27 SA entered into one of the harshest national lockdowns to slow the spread of the coronavirus. The economy, however, was weak well ahead of the pandemic’s onslaught, with SA trapped in its longest downswing in the business cycle in its history.

The full economic effects of the lockdown are yet to be understood, but the Bank forecasts that the economy will shrink by 7% in 2020. Bleaker estimates from business grouping Business 4 SA have said the decline could be between 10% and 16.7%, depending on how quickly SA’s economy reopens. Source (Business Live)