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SA unrest may halt leading indicator’s upward momentum

The gauge, which portends future economic output, rose to 128.8 in May from 125.8 the previous month.
Image: REUTERS/Rogan Ward

Deadly riots and the extension this month of the strictest coronavirus lockdown measures since May 2020 threaten to derail the upward momentum in South Africa’s composite leading business-cycle indicator.

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The gauge, which portends future economic output, rose to 128.8 in May from 125.8 the previous month, the South African Reserve Bank said in a statement published on its website Tuesday. That’s the highest since record-keeping began in 1960 and was largely driven by increases in the average hours worked by factory labourers and the volume of orders in manufacturing, according to the central bank.

While the measure points to a strong acceleration in gross domestic product for the three months through June, Africa’s most-industrialised economy is now at risk of a “sharp contraction” in the third quarter because of the riots, Annabel Bishop, chief economist at Investec Bank Ltd., said in a note.

Investec lowered its 2021 GDP growth forecast to 3.9% from 4.5% following the violent protests, looting of stores and arson in KwaZulu-Natal and Gauteng, the two provinces that make up almost 50% of South Africa’s output, and the reintroduction of strict measures to curb a third wave of coronavirus infections. Extreme damage to infrastructure that could take several months to a year to repair — if at all — is likely to weigh on output through to March 2022, Bishop said.

© 2021 Bloomberg

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