South African Reserve Bank’s Leading Economic Indicator Shows Mixed Signals in April
The South African Reserve Bank (Sarb) released its composite leading economic cycle indicator for April, revealing a 4.1 % increase year‑on‑year but a 1.8 % decline month‑on‑month. The mixed reading reflects a slowdown in the six‑month smoothed money‑supply growth rate and a drop in the number of housing schemes approved during the month.
Key Movements in the Leading Indicator
According to the Sarb’s release, eight of the ten available partial‑term series that feed into the leading indicator fell, outweighing gains in two areas:
- Volume of domestic manufacturing new orders
- Composite leading business‑cycle indicator for South Africa’s key trading‑partner countries
The decline was driven primarily by:
- A contraction in the money‑supply growth rate (six‑month smoothed)
- Fewer construction plans approved
- Lower readings on the RMB/BER business confidence index
- Fewer job advertisements
- Reduced new passenger‑vehicle sales
- A widening interest‑rate spread between 10‑year Treasury bonds and 91‑day Treasury notes
- Decline in average hours worked per factory worker in manufacturing
- Falling raw‑material price index for South Africa’s top export goods
Conversely, the volume of domestic orders in the manufacturing sector and the leading indicator for South Africa’s major trading partners posted positive contributions, helping to keep the year‑on‑year figure in positive territory.
Context Behind the Slowdown
Investec economist Annabel Bishop highlighted external pressures that weighed on sentiment:
“The readings were influenced by the war in the Middle East from late February, which severely impacted sentiment in March and into April. Most indicators fell… pointing to the decline in demand, which had a negative impact on economic activity.”
She added that several industries have postponed production runs later in the year due to demand concerns stemming from the recent oil‑price shock.
Concurrent and Lagging Indicators
The Sarb also updates its concurrent and lagging business‑cycle indicators:
- The concurrent indicator remained unchanged in March, as growth in the real value of wholesale, retail and automobile trade sales was offset by a decline in the industrial production index.
- The lagging indicator rose 0.9 % month‑on‑month in March, confirming that earlier expansions in economic activity are still feeding through to later‑stage metrics.
These three indicators together form Sarb’s toolkit for identifying turning points in the business cycle: the leading index forecasts activity several months ahead, the concurrent gauge reflects current conditions, and the lagging series validates past shifts.
Implications for the South African Economy
The April data suggest that while underlying momentum remains positive on an annual basis, near‑term headwinds are building. Analysts note that:
- A weaker money‑supply trend could constrain credit growth and investment.
- Reduced housing‑scheme approvals signal softer demand in the construction sector, a key employer.
- Lower business confidence and fewer job ads may weigh on hiring plans and consumer spending.
Nevertheless, the resilience of domestic manufacturing orders and supportive trends among South Africa’s main trading partners provide a counterbalance that could cushion the economy if external pressures ease.
Market participants will watch the next release of Sarb’s leading indicator, alongside updates on inflation, monetary policy, and global commodity prices, to gauge whether the current slowdown is transitory or the precursor to a broader downturn.
