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Mortgage Bond News: 22-07-2009
Mortgage Recession.


Annabel Bishop (Investec economist) says figures show a turning point in November. SA’s leading business cycle indicator, which predicts trends in six to 12 months, rose for the second month in a row in May, backing hopes the recession’s end is in sight.

The composite leading indicator — compiled with data from surveys, share prices and SA’s main trade partners — rose 1,2% in May after a 1,4% rise in April, Reserve Bank figures showed yesterday.

This suggests the downswing in SA’s business cycle may turn by the end of this year, reviving economic growth and ending the country’s first recession in 17 years.

“We prefer to have a bit more data but at the moment it looks quite encouraging,” said Reserve Bank economist Ian Venter. “It’s a good outcome. It’s too early to say the leading indicator has turned but it might well be the case.”

Compared with the same month last year, SA’s leading indicator still fell a massive 12,2%, slowing from April’s fall of 13,7% and March’s 15,8%, a record. But the indicator rose to 107,2 in May from 105,9 in April and 104,4 in March.

Venter said the pick-up was broadly based, with eight out of 11 components measured during the month climbing.

These included a survey of hours worked in the manufacturing sector, the growth rate of job advertisements in a weekly newspaper, and commodity prices.

“The leading indicator says the business cycle will have reached a turning point in November,” said Investec economist Annabel Bishop. “If we are looking for the economy to turn around next year, these are the types of figures we need to see now.”

SA’s leading indicator has declined steadily since reaching a peak at 127,2 in March 2007. It nudged up by 0,5% in February this year, but the Bank’s chief economist, Monde Mnyande, said soon afterwards this did not signal a turning point in the business cycle.

However, at its monetary policy committee meeting last month the Bank said the indicator suggested the “lower turning point” might be reached later in the year.

This was one of the factors likely to have persuaded the committee to keep rates on hold, surprising local markets, which had expected a cut of half a percentage point.

The Bank has lowered its key repo rate by 4,5 percentage points since December, but it takes changes in interest rates 18 months to make themselves fully felt.

The economy shrank by 1,8% in the fourth quarter of last year, which was its first contraction in a decade. During the first quarter of this year, output plunged by 6,4% — its steepest fall in 25 years and marking the start of SA’s first recession since 1992.

Analysts expect the economy to stop shrinking in the fourth quarter of this year, and rebound decisively by the start of next year.

There is ample evidence to show that the pace of decline in both factory output and retail sales, — which together comprise nearly a third of the economy — is slowing.

A business confidence survey for the second quarter of the year from the Bureau for Economic Research and Rand Merchant Bank also showed that the mood in the private sector is improving.

Bishop expects the economy to contract 4,2% in the second quarter of this year and 1,2% in the third quarter, with output flat in the fourth and final quarter.

“We are looking for marginal but positive growth to resume in 2010,” she said. Consensus forecasts from Reuters suggest the economy will shrink 1,8% this year, and then notch up growth of just more than 2% next year.

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