FNB – no surprises as the SARB Leading Business Cycle indicator continues to decline

As more-or-less “predicted” by our FNB Estate Agent Survey Activity rating, the SARB (Reserve Bank) Leading Business Cycle Indicator for August not only continued on its path of year-on-year decline, but the pace of decline also picked up speed.

While the Residential Activity rating had pointed to the likelihood of further Leading Indicator deterioration, the release of the August Leading Indicator gives us the detail of what it is that is causing the impact. Key was the weak state of the Global economy, with both Global commodity price weakness and the Leading Indicator of SA’s Major Trading Partner Countries being listed as “negative contributors”. But it would be foolish to blame the stagnation solely on global factors. SA’s myriad of structural economic constraints must be seen to be playing a major role too.


The SARB Leading Business Cycle Indicator for August showed no surprises, declining by -4.7% year-on-year. This represents a downward acceleration from the previous month’s -3.6%, and the biggest rate of year-on-year decline since July 2009.

This is the 23rd consecutive month of year-on-year decline in the indicator.

On a month-on-month basis, the Indicator also declined to the tune of -0.1%.

The list of negative contributors is a lengthy one, with the Global economic weakness playing a major role. This is reflected in both Global commodity prices as well as the Leading Indicator for South Africa’s major trading partner countries.

Business Confidence and Manufacturing Order volumes were also key negative factors included. 


The acceleration in year-on-year decline in the Leading Indicator comes as little surprise. Our Residential Activity rating, obtained from the FNB Estate Agent Survey, normally sees its own year-on-year growth/decline leading the Leading Business Cycle Indicator. This is to be expected, with residential activity long having been highly cyclical and highly sensitive to changes in the economic or interest rate environment.

So, while the residential market itself still remains at “comfortable” levels of activity, the slowing rate of year-on-year growth in activity since late 2014, now in year-on-year decline and having picked up speed in the 3rd quarter of 2015, has for a while been pointing to further economic deterioration.

Typically, troughs in year-on-year decline in the Residential Activity rating, have preceded the troughs in the Leading Indicator’s year-on-year bottom points by 3-4 quarters, suggesting that further deterioration in the Leading Indicator, and probably in economic growth, is on the cards.

Therefore, we are probably looking at a continuation of the multi-year slowing in economic growth that started back in 2012 and reached a dismal 1.5% as at 2014.

The latest SARB Leading Indicator deterioration is very much in line with key Global Leading Indicators produced by the OECD, which show a steady slide in the World’s 2 major economies’ indicators, namely those of the USA and China, as well as the composite OECD+Major 6 Economies Indicator, while their own South African version shows a similar downward move of late.


All of this has implications for the Mortgage Lending Industry. It goes without saying that residential mortgage landing is highly dependent on the economy. However, SARB Quarterly Bulletin data points to a mild growth acceleration in the growth in value of New Residential Mortgage Loans and Re-Advances Granted during the 1st half of 2015, from a low of 1.3% year-on-year as at the final quarter of 2014 to 11.3% by the 2nd quarter of 2015.

However, the industry should not be fooled by that mild 1st half “resurgence”. That renewed growth acceleration in new residential mortgage lending appears to have been nothing more than the customary lag from the time that economic pressures begin to influence growth Residential Activity levels, until the time that residential mortgage lending responds.

The 2nd quarter “high” in mortgage lending growth, therefore, appears to merely be the lagged impact of a mini-peak in the growth in the FNB Residential Activity Rating last in 2014, as well as lagging a relative “high”, i.e. a smaller rate of decline in the Leading Indicator back around late-2014, too.

Since late-2014, however, both the Residential Activity rating as well as the SARB Leading Indicator have shown broad downward acceleration in year-on-year rates of change, suggesting a slowdown in new residential mortgage lending to come.

Read more here: FNB Property Barometer_SARB Leading Indicator_20_Oct_2015