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Leading business cycle indicator shows deterioration in SA’s economic outlook


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South Africa’s economic outlook deteriorated in the third quarter due to a number of factors such as severe power cuts, leaving economists speculating that the country’s economy will not grow by the expected 2% this year.

The composite leading business cycle indicator in South Africa slipped by 1% month-over-month in July as load shedding intensified during the month, subduing employment creation as job advertisements fell.

The South African Reserve Bank (Sarb) said on Tuesday that this was the biggest decline in 10 months, which bodes poorly for the outlook as power outages reduced average hours worked per factory worker in manufacturing. It also affected other activities such as the number of building plans approved.

The composite leading business cycle indicator had risen slightly by 0.4% month-over-month in June following three consecutive months of decreases.

The Sarb said six of the 10 available component time series decreased, while four increased.

The largest negative contributors were a decline in the number of residential building plans approved and a decrease in the composite leading business cycle indicator for South Africa’s main trading partner countries.

By contrast, the largest positive contributors were an acceleration in the six-month smoothed growth rate in new passenger vehicle sales and a widening of the interest rate spread.

Investec chief economist Annabel Bishop said South Africa has seen the third quarter of 2022 afflicted by heavy load shedding, and this year has proved worse than in 2021 as the electricity availability factor (EAF) dropped to below 60% while 2021 ran at 61.8%.

The last EAF reading was for the second week of September, at a low 56.7%, meaning South Africa was only able to use 56.7% of its total capacity to produce electricity.

Bishop said the third quarter was now at risk of seeing less than a 0.5% quarter-on-quarter growth rate in GDP following a contraction of 0.7% in the second quarter.

“Indeed, the dispatchable electricity generation sent out for consumption in South Africa has fallen every year since 2018, barring 2020 when harsh lockdowns on economic activity occurred,” Bishop said.


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