• The SA Reserve Bank composite leading business cycle indicator for June increased by 2.7%.
• However, May saw the largest annual collapse on record, says an economist. 
• The operating environment still remains challenging, say analysts.

South Africa's economic activity is slowly picking up, with the easing of lockdown restrictions, according to data from the SA Reserve Bank.

The central bank on Tuesday released its latest set of business cycle indicators. In a weekly outlook report ahead of the release, FNB economists said they expected an improvement in the June data, but that it would remain "deeply negative" as the operating environment "remains challenging", despite the easing of restrictions. 

The leading indicator, which signals changes in the economy before they happen, increased by 2.7% in June as seven of the nine components increased. 

"The largest positive contributions to the movement in the composite leading business cycle indicator in June were increases in the number of residential building plans approved and in new passenger vehicles sold," the Reserve Bank said.

The coincident indicator – which gives an early reading on the impact on GDP – for May declined by 0.8% on a month-on-month basis from April. It indicates that May saw "the largest annual collapse in GDP on record," said Annabel Bishop, Investec chief economist.

"We continue to expect that South Africa’s GDP contraction overall for 2020 will be the most severe on record, likely worse than -10% y/y," she said in a note issued after the data release.

April's revised coincident indicator was 30.7%, revised down from 26.8%, compared to the previous year. May's data also reflects a 31.3% decline from the previous year. These are the two largest declines on record, since the Reserve Bank tracking this data from 1960, Bishop said. 

In its report, the Reserve Bank said the decline in the coincident indicator for May was "mitigated somewhat" by improvements in retail and new vehicle sales and industrial production, following the "gradual lifting of lockdown restrictions."

"The continued decrease in May, however, perpetuates the downward trend in the indicator and continues to show the severe impact of the extended lockdown on economic activity," it said. 

The lagging indicator, which confirms whether a shift in the economy has happened, increased 4.4% on a month-on-month basis in May.

Earlier Fin24 reported that economists are expecting second quarter GDP to contract anywhere between 45% and 55%, on a quarter-on-quarter annualised basis. During the quarter, lockdown restrictions were at Level 5, which only allowed essential goods and services to operate. As restrictions have eased, economic activity has picked up, albeit slowly.