Property Insights – SARB Leading Business Cycle Indicator

The January South African Reserve Bank Leading Business Cycle Indicator, released today, showed further noticeable decline, suggesting a possible weakening in near term economic growth and, importantly from our point of view, likely ongoing weakness in new mortgage lending growth.

On a year-on-year basis, the leading indicator fell by a significant -3.4%, while on a month on month basis it declined by -1.8%. This represents a speeding up in the pace of decline from prior months.

The list of negative contributors to the monthly decline was a long one. Negative local economic indicators included: weak job advertisements levels, new passenger vehicle sales (down -11% year-on-year in January), weak residential building plans approved numbers, average factory hours worked in manufacturing, volume of manufacturing orders, sliding business confidence, real M1 Money Supply and the interest rate spread between 91 day treasury bills and 10-year government bonds.

The negative contributor list also reflected a weakening global economy, with the leading indicator for South Africa’s major trading partner countries, along with the Commodity Price Index for South Africa’s major export commodities, on the list.

There were no positive contributing indicators.

The release of the January South African Reserve Bank Leading Indicator comes after the release of the OECD Leading Indicator for South Africa also showed further monthly decline in January.

Much of the time, the Leading Business Cycle Indicator growth direction correlates reasonably with the growth direction in new mortgage lending. This further decline in the leading indicator’s growth going into the first quarter of 2019 could thus suggest that new mortgages granted (South African Reserve Bank data) remain in negative growth territory, after two consecutive quarters of year-on-year decline in the second half of 2018. FNB also believes this points to the likelihood of ongoing real decline in property values (i.e. nominal value growth slower than general economy-wide inflation).