South African Leading Business Cycle Indicator Shows Signs of Expansion
The South African Reserve Bank’s leading composite business cycle indicator climbed 7.5 % year‑on‑year and 2.4 % month‑on‑month in March, according to the bank’s latest monthly release. The rise was driven by gains in six of the seven components that make up the index, outweighing a modest decline in the indicator for South Africa’s key trading partners.
Key Drivers Behind the March Rise
- M1 money supply growth – the six‑month smoothed growth rate of the most liquid forms of money (circulating coins and paper money) accelerated, providing the biggest positive boost.
- Interest‑rate spread – the gap between the yield on 10‑year Treasury bonds and 91‑day Treasury bills widened, signalling stronger expectations for future economic activity.
- Commodity price index – the dollar‑based index for South Africa’s top exports rose, reflecting stronger global demand for the country’s mineral and agricultural goods.
- Building plans approved – approvals for apartments, townhouses and houses larger than 80 m² increased, pointing to sustained activity in the construction sector.
- New‑car sales and job advertisements – the six‑month smoothed growth rate of new car sales and job ads in the Sunday Times and Pnet also moved upward.
What the Indicators Mean for the Economy
The leading indicator is designed to forecast economic activity several months ahead. By contrast, the concurrent indicator measures current conditions, while the lagging indicator confirms changes that have already occurred.
In February, the concurrent business cycle indicator slipped 0.1 %, dragged down by lower manufacturing capacity utilisation and a dip in the industrial production index. The lagging indicator fell a sharper 0.6 % over the same period, reinforcing the view that recent weakness has been concentrated in factory output.
Despite these short‑term headwinds, the upward momentum in the leading gauge suggests a turning point may be on the horizon. Investec economist Annabel Bishop noted:
“The Reserve Bank’s leading business cycle indicator…points to an expansion in economic activity from 4Q26, considering the six‑month lead. It rose 1.9 % quarter‑on‑quarter, indicating a jump from 3Q26.”
Bishop’s assessment aligns with the central bank’s interpretation: a sustained rise in the leading index often precedes a pickup in gross domestic product (GDP) growth two quarters later. If the trend holds, South Africa could see a modest rebound in output beginning in the fourth quarter of 2026.
Context and Outlook
South Africa’s economy has been navigating a complex mix of domestic constraints — such as electricity supply challenges and structural unemployment — and external pressures, including volatile commodity prices and slower growth in major trading partners like China and the Eurozone. The strengthening of the M1 money supply and the widening interest‑rate spread are typical signals that monetary conditions are easing, which can support borrowing and investment.
Analysts caution that while leading indicators are useful, they are not infallible. Unexpected shocks — such as a sharp rise in global interest rates or a further deterioration in power supply — could offset the positive momentum. Nonetheless, the current data provide a hopeful sign for policymakers and businesses alike.
Sources
- South African Reserve Bank, “Monthly Business Cycle Indicators – March 2025”, resbank.co.za.
- Investec, “South Africa Economic Outlook – Q1 2025”, investec.com.
- Bloomberg, “South African Leading Indicator Rises on Money Supply Growth”, March 2025.
