By Business Reporter
THE IJG Business Climate Monitor went up marginally, by 0.13 points, in July 2017, the second time this year that an increase has been recorded.
As a result, the index now stands at 45.16 points.
“Despite the small increase, the index has been below the 50-point level for seven months, indicating that economic contraction is taking place. There was a slight drop in the leading indicator, which has remained well below the 50-point level for ten consecutive months,” the monitor acknowledged.
Of the 31 indicators measured by the index, 15 expanded in July, one remained unchanged and the remaining 15 contracted.
Produced by the Institute for Public Policy Research (IPPR), the monitor also highlighted that uranium prices weakened, and although this was partially offset by a weaker rand, continued low prices do not bode well for the future of the sector.
“Copper prices continue their upward trend, up by around 7.5 percent in both rand and dollar terms. Further ‘green shoots’ include the increased vehicle sales seen in July, as compared to June, but sales remain lower than the figures for July 2016,” the monitor further explained.
The index encompasses 31 indicators, selected from available high frequency data. These are split into five broad categories, namely: policy environment, primary sector output, secondary and tertiary output, external account and pricing.
Given the available high-frequency data, these categories provide the best available high-frequency insight into developments in the local economy and business cycle. The raw data are adjusted and transformed for seasonality, inflation and exchange rate, as appropriate. In addition, the data are adjusted to factor in whether higher or lower values are desirable, for example, higher government spending is positive for the business climate, while higher interest rates are negative.
“The number of livestock marketed in July increased by 2 percent from June 2017 and by 208 percent from July 2016 (49 567 compared to 16 070). Of the total livestock marketed, 74 percent were exported live to South Africa. This raises some concerns, as it means that domestic stock levels are not being built up, after losses due to the drought. This trend could undermine food security in the coming years, when the current young livestock being sold would have matured. As a result, Namibian producers may find themselves in a position where they are not able to meet local demand,” the monitor also highlighted.
In order to develop a stationary indicator (i.e. not trending up or down), and to show dispersion from a mean value, the common PMI (Purchasing Managers’ Index) approach has been slightly adjusted and utilised.
This approach sees transformed indicators that are contracting over a 12-month period given a value of 0, while unchanged indicators are valued at 50 and expanding indicators are valued at 100. The average value across the indicators is then taken, with an overall value of over 50 implying expansion in the majority of indicators, while a value below 50 shows contraction in the majority of indicators.
In addition to the level, the trend of the Business Climate Monitor (BCM) line illustrates whether indicators are generally improving or deteriorating. A 12-period moving average is then used to smooth the indicator and ensure that short-term volatility or base effects do not provide a misleading view of the local business climate. When compared to the historic business cycles, this approach gives a satisfactory high-frequency view of the state of the local business climate.
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