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Sarb index shows growth on track

Johannesburg - SA's leading economic indicator rose 5.5% year-on-year (y/y) in January from an 8.9% y/y increase in December, according to South African Reserve Bank (Sarb) data released on Wednesday.

The indicator provides a guideline for economic growth for at least six months ahead. It has shown a steady rise over the past year, indicating that SA's economic growth is on track.

The latest increase takes the indicator to an index level of 134.2. In December it was 132.2.

The indicator increased by 1.2% in January 2011 compared with the preceding month. Eight of the 11 component time series that were available for January 2011 increased, while three decreased. The largest positive contribution to the leading indicator came from residential building plans passed, followed by the export commodity price index.

The major negative contributors in January were the 12-month percentage change in the number of new passenger vehicles sold, as well as the 12-month percentage change in job advertisement space.

The leading indicator had been over 120 and nearer to 130 for the whole of 2007. It slowed, however, and then dissipated when the first recession in 17 years was entered into in late 2008.

The coincident indicator - which moves in line with the economy - for December came in at 148.8 from 147.8 a month before. The lagging indicator, however, was reported at 97.9 from 99.2.

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.

The Sarb uses more than 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, indicating the direction of the change in economic activity rather than the level of economic activity.
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