The South African seasonally adjusted leading economic indicator was reported by the South African Reserve Bank (SARB) to have decreased marginally to 123.6 in June from an upwardly revised 123.9 (122.6) in May. It leads GDP growth by around a year, and has been reflecting the coming slowdown in economic growth.

These levels at above 120, however, do not reflect a recession.

Last year's best was the 129.1 set in May and it has been a slower ride since. This comes after South Africa's economy had been enjoying the best phase of growth since the Second World War.

The coincident indicator for May was reported at 156 from a revised 156.9 (158), while the lagging indicator was reported at 122.1 from a revised 121.2 (121.4).

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 leading indicator provides a good forward barometer of where the economy is probably headed. Readings at the 120 mark indicate that strong growth can be expected.

Economists are starting to talk about a two-speed economy in South Africa, where the infrastructure drive still causes some sectors to gain speed as others falter.

Most economists, though, expect the current year to be the harbinger of slower growth due to global equity and credit problems, the power crisis and higher rates for longer.

Mathematical effects

Head of GDP at Statistics South Africa, Joe de Beer, told I-Net Bridge on 19 August that third quarter GDP will be interesting to watch as some sectors of the economy grew strongly in the second quarter thanks mainly to mathematical effects.

He explained that now that a higher figure was registered for primary sectors in the second quarter, they would not have such a positive base effect come the third quarter.

Added to this is that the wholesale and retail trade sector came off in the second quarter after seven years of positive growth, and potential lower growth here could again be recorded in light of the higher rates scenario.

He cautioned that although the second quarter data showed strong growth of 4.9 percent quarter-on-quarter easonally adjusted annualised from just 2.1 percent in the first quarter, a lot of this had to do with these base effects, where a previous comparative number was low.

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

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.

I-Net Bridge