Business

SA economy will remain under pressure, shows LEI

Staff Reporter

The month on month decline in the leading economic indictor means the economy will be hard-pressed for the first half of 2014.

A steady improvement in the global economy should lift South African exports, especially given the weaker rand. (Gallo)

Economist Kevin Lings said the "disappointing decline of 0.2% month on month" in the leading economic indicator (LEI) for November last year by the Reserve Bank, shows that the South African economy will remain under pressure for the first half of the year.

The decline followed a modest increase of 0.2% month on month in October and a decline of 0.1% month on month in September.

The leading indicator, which includes a number of sub-indicators ranging from manufacturing orders and passenger vehicles sold, has now declined in six of the last nine months.

"On an annual basis, the leading indicator fell by 0.1% year on year in November 2013, down from a growth of 0.6% year on year in October 2013," said Lings.

"The current trend in the leading indicator suggests that the South African economy will remain under pressure during the first half of 2014.

"This is largely due to domestic circumstances. In contrast, the global economic environment continues to improve, which will hopefully provide some positive offset for the South African economy as the year unfolds."

Lings said the weakness in November 2013 was fairly narrow with only four of the 11 components of the time series declining.

Residential building plans decline
The major negative contributions in November came from a decline in the number of residential building plans passed, as well as a deceleration in the six-month smoothed growth rate.

He said the South African leading indicator has a good correlation with the Organisation for Economic Co-operation and Development (OECD) leading indicator, with a short lag.

"Importantly, this relationship appears to have gotten stronger over the years [mainly due to the increased globalisation of South Africa] and the lag has tended to shorten," said Lings.

"The OECD leading indicator has clearly turned positive during the past few months, which is a very encouraging signal for the South African economy going into 2015."

Lings said this was significant because a steady improvement in the global economy should lift South African exports, especially given the weaker rand, and this combined with an improvement in infrastructural development, lift South Africa's growth prospects.

"It is important that South Africa moves past the labour market disruptions and policy uncertainty that are currently afflicting a number of key economic sectors, and finds a way to lift business and consumer confidence generally," he said.

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