This is according to the South African Reserve Bank, stating that the LEI has declined in eight out of the last 12 months and on an annual basis, fell by 2.8 per cent year on year in February 2014, compared to a decline of two per cent in January.
“The current trend in the leading indicator suggests that the South African economy is losing momentum and will remain under pressure during the first half of 2014. This is largely due to domestic circumstances including the impact of strike activity, higher interest rates, falling confidence and a reduced intention to increase employment,” said Kevin Lings, chief economist at Stanlib, an African based multipurpose investment company.
(READ MORE: S.African economy sheds 48,000 jobs in March)
All the while, the global economy continues to improve steadily.
He further explained that seven of the eleven components of the leading indicator fell while four increased, with the major negative contributions in February stemming from a decline in the number of residential building plans, as well as a decrease in the export commodity price index.
The largest positive contributions, Lings added, was an acceleration in the 12 month rate of change in job advertisement space, followed by an increase in the average hours worked by factory workers in the manufacturing industry.
However, the LEI has a good correlation with the OECD (Organisation for Economic Co-operation and Development) leading indicator which has remained positive during the past few months. Lings therefore believes that this may be a sign that the local economy will improve.
“The OECD leading indicator has remained positive during the past few months, despite some softening in economic activity in late 2013 and early 2014, which is an encouraging signal for the South African economy going into the second half of 2014 and early 2015,” he explained.
“Hopefully, a steady improvement in the global economy (which should lift SA exports, especially given the weaker Rand) coupled with an improvement in infrastructural development have the potential lift SA’s growth prospects in 2015.”
Lings therefore believes that South Africa needs to settle its labour market disruptions and policy uncertainty as soon as possible as these issues continue to affect a number of key economic sectors, as well as to find ways to lift business and consumer confidence.
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