The Reserve Bank’s leading business cycle indicator, which contracted for a second consecutive month, paints a bleak picture of SA’s growth prospects — which look set to disappoint once again.

After the economy failed to grow more than 1% in 2018, the data, released on Tuesday, suggests that any momentum has stalled.

The leading indicator is based on monthly movements in various economic indicators, such as interest rate spreads, new passenger vehicles sold and job advertisements. It is watched closely as it moves in line with current economic growth — a drop in the indicator signals a risk of weak growth, or even contraction, for the economy.

The leading indicator slipped into contractionary territory in December for the first time since July 2016. In January this year it fell 1.8%, reflecting current fragilities in the economy. The biggest blow came from further decelerations in the 12-month percentage changes in job advertisement space and in the number of new passenger vehicles sold.

Picture: 123RF/blueximages
Picture: 123RF/blueximages

"It’s telling us that economic momentum is slowing in SA, indicative of load-shedding, suppressed domestic demand and low confidence," says BNP Paribas economist Jeff Schultz. "This tells us that in the next six to 12 months, economic activity will disappoint."

This comes after a slew of disappointing data showing the economy faltered at the start of the year. A stronger-than-expected performance in the retail sector in January was not enough to offset weak performance in the mining and manufacturing sectors.

The economy has also been dealt a blow by persistent power cuts, which have threatened to dent economic growth. The Reserve Bank will this week likely revise down its growth forecast of 1.7% for the year.

However, despite the weak economy, the number of employed South Africans rose by 87,000 in the fourth quarter of 2018, according to the latest quarterly employment statistics, which cover all sectors other than agriculture.

"This is a backwards-looking indicator and does not look through the seasonal temporary employment in the fourth quarter," says Schultz. "This is broadly on the services side of the economy — what we need to see is job creation on the supply side of the economy."

Though employment gains were seen in certain industries, overall domestic labour market conditions remain sluggish — a result of the flailing economy.