Figure 1: Summary of the composite business cycle indicators for 2017*
  • The Q4.17 leading indicator reading has come out at 105.2, well up on the rest of the year, and the sub 100 readings in 2016 and 2015. The quarter’s reading points six months out, with the business cycle in Q2.18 (and GDP growth) indicated to strengthen on today’s reading. GDP growth could be above 2.0% for Q2.18.
  • Sentiment improved from end December, with the SACCI business confidence reading reaching 99.7 in January 2018, the highest level since early 2015 – before Nene’s sacking. Business confidence is likely to improve further in February when Cyril Ramaphosa became president of SA, with the Q1.18 BER reading also likely to show a significant lift.
  • The positive relationship between business confidence, fixed investment and GDP growth means that SA is likely to experience faster economic growth in 2018 than in 2017. President Ramaphosa recognises this relationship, and an Investment Summit is consequently planned to take place within the next three months to interact with local and foreign investors on key issues to promote investment.
  • Moody’s has said that a further commitment President Ramaphosa made in the SONA, to resolve the impasse in the mining sector is credit positive, as indeed is his appointment to both President of the ANC and then of SA. With heightened political uncertainty last year, and the perceived negative impact of populism on government policy, some of Moody’s previous key concerns, which had led it to communicate the likelihood of sub-investment grade for SA this year are abating (Moody’s is the last of the key agencies to hold SA on investment grade). The likely improved GDP growth outlook will also be seen as credit positive.
  • The key determinant of whether SA will receive a downgrade from Moody’s (the last key agency to hold the sovereign on investment grade), is tomorrow’s Budget. Fiscal consolidation is needed, but not to the point of strangling economic growth, and so cuts in actual expenditure and borrowings projections remain crucial.
Figure 2: GDP vs the leading indicator
Figure 3: GDP vs Industrial Production
  • December 2017’s leading indicator came out at 104.6, somewhat lower than the previous outcome. Five of the SARB’s nine available leading indicator sub-components increased – the number of building plans passed, the US$ based commodity price index, real M1 (money supply), the volume of orders in manufacturing new passenger vehicle sales and job advertisements.
  • The indicators which fell in December were the number of new passenger vehicles sold, the average hours worked per factory worker in manufacturing, the leading indicator for SA’s major trading partners and the interest rate spread.
  • The coincident indicator shows positive growth for Q4.17, with retail sales at 9.3% qqsaa, a third higher than in Q3.17, although industrial production was up 1.7% qqsaa in Q4.17 (under half Q3.17’s figure) and the leading indicator for Q2.17 signals slower growth in Q4.17 than in the middle two quarters of 2017.
Figure 4: Business cycle phases of South Africa since 1945