SA recession may end sooner

Johannesburg - South Africa's leading economic indicator recorded 105.9 in January and 106.6 in February, implying that the SA economy may find itself moving out of its recession in the third quarter of 2009 rather than the fourth quarter should a rising trend in the index establish itself.

This is according to chief economist from Investec, Annabel Bishop, who stresses that this reading is only one month's figure "so we would therefore wait until a few months to be certain, but should the leading indicator index continue to rise (and February be the low point) it would indicate a three quarter instead of four quarter recession for SA".

During troughs, the South African Reserve Bank's (SARB's) leading indicator index has historically turned, on average, six months before the reference turning point in the business cycle (i.e. stopped falling and started to increase), notes Bishop.

"In other words this view would be confirmed should the index of the leading indicator not fall further and now continue to rise. The SARB stresses it is the index, not the rate of change to watch," she says.

This comes on news today that the seasonally adjusted leading economic indicator in South Africa is down 15.5% year-on-year (y/y) to 106.6 in February from the 126.1 seen in February 2008, but has increased marginally on the month from the revised 105.9 (106) in January.

The leading indicator had been over 120 and nearer to 130 for the whole of 2007.

The coincident indicator for January was reported at 146.0 from a revised 147.7 (146.8) in December, but was down 5.9% y/y after reaching 155.2 a year ago.

The lagging indicator was reported at 130.9 from a revised 130.7 (131.6) in December, and it is up 7.5% y/y.

The drastic declines in South Africa's leading and coincident economic indicators cement the idea that South Africa is in a recession for all intents and purposes, according to economist from Economists.co.za, Mike Schussler.

The coincident indicator is an economic factor that varies directly and simultaneously with the business cycle, thus indicating the current state of the economy. The lagging indicator changes after the economy has already begun to follow a particular trend and this decline is the first one recorded this year.

The SARB uses over 200 economic time series to determine the turning points of the South African business cycle. Using these indicators, the leading, coincident and lagging composite business cycle indices are produced that indicate the direction of the change in economic activity rather than the level of economic activity.

South Africa's real gross domestic product at market prices on a quarter-on-quarter (q/q) seasonally adjusted annualised (saa) basis dropped by -1.8% in the fourth quarter of 2008 from +0.2% in the third quarter.

A further decline in the first quarter is now seen by many analysts as a fait accompli, thus officially ushering in a technical recession, but determining the end point of the recession is not so easy, although it will be a critical turning point for the markets.

- I-Net Bridge