Alternative Cycle Indicators for the South African Business Cycle

Abstract

The South African Reserve Bank’s composite coincident and leading indicators are key inputs in the bank’s elaborate process for identifying business cycle turning points in South Africa. This data-intensive process has drawback, in that there is a significant delay in both the publication of the indicators and in the determination of the official turning points. We show that business confidence indicators (BCIs), published by both the Bureau for Economic Research (BER) at Stellenbosch University and the South African Chamber of Commerce and Industry (SACCI), can be useful, timely and robust indicators of the South African business cycle. The two BCIs, and the BER BCI in particular, are useful leading indicators of turning points in the South African business cycle and track the official business cycle relatively closely, while they are published before the official series and are not subject to revision. The BCIs also contain relevant information for the prediction of output growth. We also review a recession-prediction algorithm of the BER, relying on six variables (including the BER BCI), which has proven successful at dating South African business cycle recessions.