The SA leading economic indicator for November 2011 was released today by the Reserve Bank, and recorded an encouraging rise of 0.6%m/m, after increasing by 0.2%m/m in both October and September. To some extent this helps to confirm that the Q4 2011 estimate of SA GDP growth should be reasonably healthy and above the growth rate recorded in Q3 2011.
On an annual basis the leading remained positive, growing by 2.0%y/y, although it is still signaling a likely loss of momentum in the economy during 2012. The annual rate of change is massively down from a peak of 24.2%y/y in April 2010 (see chart attached).
The rise in November was not emphatic, with only 6 of the 11 components measured during the month rising. The positive contributions came from hours worked in manufacturing, residential building plans passed, job advertising, volume of manufacturing orders, equity market performance, and the interest rate spread. The largest negatives were the leading indicator for our major trading partners and passenger vehicle sales.
The loss of momentum in the domestic economy is likely to become a little more noticeable in 2012. This is partly due to the ongoing economic weakness in many of the major economies (especially the impending recession in the Euro-area), but it also reflects the damaging effects of rising domestic inflation, and hence a loss of growth momentum in real household incomes during the coming year. SA’s GDP growth forecast for 2012 has been revised systematically lower over the past few months, with the Reserve Bank revising their own growth GDP forecasts lower last week to 2.8% compared with earlier estimates of slightly above 3%. (Stanlib 2.8%)
As would be expected, the SA leading indicator has a good correlation with the OECD leading indicator (with a short lag). SA’s leading indicator tends to lag the global economic cycle, both into a slowdown/recession as well as into a recovery, but by only about 1 to 3 months. Importantly, this relationship appears to have got stronger over the years (mainly due to the increased globalisation of South Africa) and the lag has shortened from around 6 months a decade ago to around 1 to 3 months currently.
The SA leading economic indicator is compiled by the SA Reserve Bank and released once a month. It consists of 12 sub-indicators, namely:
- Opinion survey of volume of orders in manufacturing
- Opinion survey of stocks in relation to demand: Manufacturing and trade
- Opinion survey of business confidence: Manufacturing, construction and trade
- Composite leading business cycle indicator of major trading-partner countries: Percentage change over twelve months
- Commodity prices in US dollars for a basket of South Africa’s export commodities: Six-month smoothed growth rate
- Real M1 money supply (deflated with the CPI): Six-month smoothed growth rate
- Prices of all classes of shares: Six-month smoothed growth rate
- Number of residential building plans passed for flats, townhouses and houses larger than 80m2
- Interest rate spread: 10-year bonds less 91-day Treasury bills
- Gross operating surplus as a percentage of gross domestic product
- Job advertisements in the Sunday Times newspaper: Six-month smoothed growth rate
- Opinion survey of the average hours worked per factory worker in the manufacturing sector
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