South African Reserve Bank’s Leading Indicator Rises 6.4% Year‑on‑Year in February
The South African Reserve Bank (SARB) reported that its composite leading economic cycle indicator climbed 6.4% in February 2025 compared with the same month a year earlier. The index stood at 120.2 points**, marking a modest 0.5% increase from January’s level.
According to the SARB’s monthly release, the gain was driven by improvements in seven of the ten underlying time‑series, while three series posted declines. The bank uses this leading indicator—along with concurrent and lagging composites—to gauge turning points in the business cycle.
What Pushed the Indicator Higher?
The two biggest positive contributors were:
- Number of approved housing plans – reflecting stronger residential construction activity.
- US dollar‑denominated export commodity price index – benefitting from firmer global commodity prices.
These components suggest that both domestic demand for new homes and external demand for South African commodities are providing upward pressure on near‑term economic momentum.
Areas of Weakness
Despite the overall rise, the indicator was held back by:
- A decline in domestic manufacturing orders, signalling softer factory‑gate demand.
- A slowdown in the six‑month smoothed growth rate of job advertisements, pointing to a moderation in hiring intentions.
These drags highlight that while some sectors are gaining traction, others—particularly manufacturing and labour‑market sentiment—are experiencing headwinds.
How the Leading Indicator Fits Into SARB’s Business Cycle Toolkit
SARB analyses three composite indicators:
- Leading indicator – aims to forecast economic activity several months ahead.
- Concurrent indicator – mirrors current economic conditions.
- Lagging indicator – confirms changes that have already occurred.
In the same report, the bank noted that both the concurrent and lagging indicators rose 0.3% in January 2025, supported by gains in the industrial production index and the real value of wholesale, retail and automobile trade sales. This alignment suggests that the economy is currently expanding, with the leading indicator pointing to continued momentum in the months ahead.
Historical Context: Recent Peak and Trough
SARB’s March 2025 quarterly bulletin confirmed that the most recent peak in South Africa’s business cycle occurred in March 2022, while the trough was reached in April 2020 during the height of the Covid‑19 pandemic. The current upward trajectory of the leading indicator implies that the economy is moving away from that pandemic‑induced low and is building toward the next expansion phase.
Why This Matters
For policymakers, investors, and business leaders, the leading indicator offers an early warning system. A sustained rise—especially when driven by housing approvals and export commodity prices—can signal strengthening demand that may influence interest‑rate decisions, investment planning, and hiring strategies. Conversely, weaknesses in manufacturing orders and job‑ad growth warrant monitoring, as they could foreshadow slower growth if they persist.
SARB routinely reviews the composition of its composite indicators to ensure they reflect structural shifts in the economy, the addition of new data series, or the discontinuation of outdated metrics. This ongoing refinement helps maintain the reliability of the indicators as tools for economic analysis.
For further details, see the SARB’s official website and the March 2025 Quarterly Bulletin.
