The Reserve Bank in Pretoria. Picture: FINANCIAL MAIL
The Reserve Bank in Pretoria. Picture: FINANCIAL MAIL

SOUTH Africa’s leading indicator of business activity, compiled by the Reserve Bank to provide a guideline for economic growth for at least six months ahead, increased for the sixth consecutive month in December, cementing views there will be some economic recovery this year.

The indicator, released on Tuesday, indicates the pace of growth will, however, not be robust.

The leading indicator rose 0.1% to 131.7 in December from November, and was up 1.2% compared with December 2011.

Rand Merchant Bank economist Carmen Nel said in a research note that the indicator had gained momentum towards the end of the year, pointing to an improvement in sequential growth in the first half of this year, "albeit off a low base in the second half of 2012".

Five of the 10 component time series that were available for the survey in December increased‚ while five decreased‚ the Reserve Bank said.

Most of the economic growth this year is expected mainly as a result of forecast higher exports. The largest positive contributions to the index came from an acceleration in the 12-month percentage change in the composite leading business cycle indicator for South Africa’s major trading-partner countries, as well as an increase in the export commodity price index.

The major negative contributions to the movement in the leading indicator in December came from a decrease in the number of residential building plans passed, as well as from a narrowing of the interest rate spread.

Ms Nel said despite some of the data painting a slightly more upbeat picture of the local economy, the market continued to price in a larger probability of another rate cut this year.

"According to the FRAs (forward rate agreements) there is almost a 30% chance of a 50 basis point rate cut in the third quarter of 2013," she said.