Johannesburg - The latest leading economic indicator (LEI), published by the Reserve Bank, fell between May and June this year and the annual rate of increase also came down, with economists saying this shows economic growth losing momentum in the months ahead.
The LEI came in at 128.2, a month-on-month (m/m) fall of 1.8%. This is the second consecutive monthly fall after May's 0.5% decline. Economists warn against reading too much into the m/m falls, saying the year-on-year (y/y) rate of change is a more important indicator of where economic growth is going. Y/y, the LEI increased by 16.9% - down from the 20.6% recorded in May.
The index is still substantially higher than it was when crisis hit in December 2009.
Stanlib economist Kevin Lings said the annual rate of change in the LEI was expected to moderate noticeably in the months ahead, given the exceptionally high base that had been established over the past few months. There was a reasonably good relationship between SA's leading indicator and overall economic activity.
"This relationship suggests that the SA economy should show solid gross domestic product growth in 2010, although we expect to see a loss of growth momentum in the second half of the year, but not a return to recession," Lings said.
Lings said there was a good correlation between SA's LEI and the Organisation of Economic Cooperation and Development (OECD) leading indicator, which had strengthened in time as SA had become a more open economy. SA's leading indicator trended to lag the global economic cycle, both into a slowdown/recession as well as into recovery, but only by about one to two months.
"The fact that the OECD leading indicator - and more recently, the US leading indicator – has continued to moderate on an annual basis suggests that SA's leading indicator is also likely to move lower in the months ahead," Lings said.
The Reserve Bank uses 13 sub-indicators - statistical releases that are put together to arrive at a unique LEI - to compile the leading indicator.
These sub-indicators include opinion survey of volume of orders in manufacturing; commodity prices in dollars for a basket of SA's export commodities; real M1 money supply; share prices; the number of residential building plans passed; interest rate spread between 10-year bonds and 91-day treasury bills and labour productivity in manufacturing.
Statistics SA is releasing second-quarter gross domestic product figures on Tuesday. They are expected to already show a slowdown in growth from the first quarter's 4.6%, with consensus forecasts putting growth at 3.7% quarter-on-quarter, seasonally adjusted and annualised.
- Fin24.com