The composite leading business cycle indicator compiled by the South African Reserve Bank (SARB) increased by 0.3 per cent in March 2016 compared with February. This was the first monthly increase since October 2015 and may herald a turning point in the business cycle. Four of the nine component time series that were available for March 2016 increased, while five decreased.
The largest positive contribution to the movement in the composite leading indicator in March resulted from an increase in the US dollar based export commodity price index, as well as an acceleration in the six-month smoothed growth rate in the real M1 money supply. The largest negative contributions in
March came from a decrease in the number of residential building plans passed, followed by a deceleration in the twelve-month percentage change in job advertisement space. The latter may be overstating the negative contribution as job recruitment moves from print media to the online space.
Although the South African economy continues to grow, the business cycle section of the SARB said that the economy officially entered a downward phase in December 2013. A downward phase in this case means that the economy is increasing at a slower rate than its long-term growth trend.
South Africa, like the United States, uses at least 20 different indicators to determine business cycle turning points, rather than just saying two consecutive quarters of contraction result in a recession. The last recession in South Africa on that basis took place in 2009.
As these indicators are only available with a considerable lag, it takes up to two years to determine the turning point, so it may only be in March 2018 that the South African Reserve Bank is able to say that the South African economy entered an upward phase sometime around March 2016.
The upward phase from September 2009 to November 2013 lasted 51 months, only exceeded by the record upward phase of 99 months from September 1999 to November 2007 when economist Thabo Mbeki was President. In the apartheid era the longest upward phase only lasted 44 months.
As yet there are few other indicators to show that March may have been the bottom, but the recovery in the rand, business and consumer confidence, as well as a jump in bulk exports, which require a rise in mining production and transport to achieve a near-record monthly tonnage, do seem to corroborate the turn in the business cycle.
