Early signs of economic recovery underway, Reserve Bank says

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The SA economy is showing early signs of recovery, but has a long way to go.
The SA economy is showing early signs of recovery, but has a long way to go.
  • The SA Reserve Bank's composite business cycle indicator increased by a further by 2.6% month-on-month for July.
  • These green shoots are an early sign that the SA economy is recovering, according to an economist.
  • Largest positive contributors to the indicator were increases in the number of residential building plans and the RMB/BER Business Confidence Index.

There are early signs the SA economy is slowly starting recover but it's nowhere near the performance recorded in the first quarter of the year, according to an economist.

The SA Reserve Bank (SARB) on Tuesday released it business cycle indicators – which are used to forecast the direction of the economy. The composite indicator for July increased by 2.6% month-on-month.

Increases were recorded for eight out of 10 components. The largest contributors to the July figure were the number of residential building plans approved, as well as the RMB/BER Business Confidence Index – the latter of which increased from a low of 5 in the second quarter to 24 in the third, Fin24 previously reported.

The composite coincident indicator – which gives an early reading on GDP – increased by 3.7% on a month-on-month basis for June. It was supported by increases in retail and new vehicle sales, and to a lesser extent industrial production as economic activity improved after lockdown restrictions eased. On a month-on-month basis, June was the first month to show an uptick since November, up 3.7%, noted Investec economist Annabel Bishop.

On a year-on-year basis, economic activity for June fell by 32.3%. May's economic activity was revised to -34.9% year-on-year and in April economic activity was down 33.2% year-on-year drop.

"The positive outturn on the month in June is indicative of green shoots of recovery in the economy," Bishop said. Overall the economy in the second quarter contracted by 16.4% on a non-annualised basis.

"Green shoots are essentially early signs that economic recovery is tentatively beginning, but in themselves are not an actual indication that a very robust economic recovery is firmly underway, with the co-incident indicator of economic activity in June still contracting versus a year ago, by the -32.3% y/y," she explained.

Bishop said the SA economy is not likely to soon return to the economic activity reported in the first quarter. Investec expects the economy to grow by 25.9% on a quarter-on-quarter seasonally adjusted annualised basis. It has penciled in a yearly contraction of 12.1%, in comparison the SARB expects a contraction of 8.2% and the Organisation for Economic Co-operation and Development expects a drop of 11.5%.

The lagging indicator, which indicates whether a shift has happened increased 2.1% month-on-month in June.  

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