Edward West
27 October 2009
Johannesburg — SA's leading business cycle indicator has risen for the fifth month running, boosting expectations that the economy will emerge from recession in the fourth quarter.
The composite leading indicator climbed a robust 2,1% in August to 112,5 from 110,1 in July, although the level is still 3,5% below the 116,6 reported in August last year.
The indicator -- compiled by the Reserve Bank with data from surveys, share prices and SA's main trading partners -- predicts trends in the economy in the next six to 12 months.
SA's emergence out of recession will come as a relief to the government which is already facing an estimated R70bn revenue shortfall and has to borrow to finance its medium-term budget policy statement (MTBPS), which is being released today. The MTBPS maps out government spending and revenue plans over the next three years.
"The leading indicator is approaching levels experienced in the third quarter of 2008, but what is particularly key is that it is showing a strong, positive trend which underscores our expectation that the SA economy will be out of recession in the fourth quarter of 2009," said Investec group economist Annabel Bishop.
Absa Capital economist Jeff Schultz said the economy could have emerged from recession as early as September or this month. He predicted third-quarter gross domestic product (GDP) growth at zero and that it would rise to 2,3% in the fourth quarter. Growth "will be slow", with year-on-year GDP growth next year likely to be relatively low at 2,3%.
Bishop expected growth of 0,2% in the fourth quarter and 2,4% in the first quarter of next year with year-on-year growth next year expected to be 1,6%.
However, "the economic recovery is expected to be slow and not necessarily steady, further company losses can be expected and revenue collections will be below historic levels in the next fiscal year as well", she said.
Budget deficits are rising globally as governments assist ailing companies to limit systemic financial crises.
"The SA government is not providing timely enough assistance to prevent domestic job and company losses and the taxpayer base is dwindling as a result. Rising welfare needs are contributing to the growing fiscal deficit and this will persist," said Bishop.
Nedbank 's group economic unit said today's budget is likely to reflect large deficits for this year and next year due to lower revenue collection and stronger government spending. "There is near consensus around a deficit of just under 8% this year ... next year's deficit is more debatable."
Stanlib said in a note that apart from the larger budget deficit, the focus today would be on the revenue shortfalls, expenditure overruns and potential changes to infrastructure spending.
"While the GDP performance for the past three quarters has been especially weak, the third- quarter performance may actually show an increase off a low base. SA's leading indicator has started to improve and some commercial banks have announced a modest relaxation in their lending criteria," Stanlib said.
Economists expect government expenditure growth to be similar to that budgeted at 16,2% year on year, due to a rising wage bill, the creation of new departments and more spending on social services.
Bishop said that the government's low ratio of debt to GDP made it appear as though it could afford to have a higher budget deficit. However, interest on debt would need to be serviced by a dwindling tax base.
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