SA's leading business cycle indicator climbed a robust 1.8 percent in June, rising for the third month running and backing expectations that the economy will emerge from its recession by the end of the year.

The composite leading indicator — compiled by the Reserve Bank with data from surveys, share prices and SA's main trade partners — predicts trends in the economy in six to 12 months.

It rose to 109.7 in June from 107.8 in May, the biggest monthly rise in 5˝ years, taking the index to its highest level in eight months, the Bank said yesterday.

"This could signal a turning point in the business cycle towards the end of this year," said Ian Venter, an economist at the Bank.

The index hit a low of 104.9 in March. Historically, it reaches a trough six months ahead of business cycle upturns so the data could indicate a turning point in the fourth quarter, when the economy is expected to notch up some growth, although some analysts think this could happen sooner.

Third quarter to be the last quarter of recession

"The reading confirms our view that the third quarter of 2009 will be the last quarter of recession in SA," said Investec economist Annabel Bishop.

Official data last week showed the economy shrank for the third quarter running, between April and June this year. But the pace of contraction slowed to three percent from 6.4 percent in the first quarter, its steepest fall in 25 years.

Leading indicators for several of SA's main trade partners — Europe, the UK, the US and Japan — have also begun to rise, but SA is lagging the global recovery.

Its leading indicator is still falling compared with that of the same month last year, dropping 9.9 percent in the year to June. But that is the first single-digit fall since last September, and the pace of decline has slowed from 15.4 percent in March.

"I think we've seen the worst of the recession, but probably won't be out of it until the end of the year," said Brait economist Colen Garrow. "The big risk is the shape of the global environment."

Economy to shrink 2%

Most analysts think the economy will shrink about two percent this year, similar to a 2.1 percent contraction in 1992, when it was last in recession. Garrow expects a more modest fall in overall output, closer to one percent.

But few see a real rebound until the first quarter of next year, when the full effect of a global recovery, lower domestic interest rates and the benefits of hosting the Soccer World Cup make themselves felt.

"The South African economy will most likely recover in Q1 (first quarter) 2010, due both to the earlier resumption of global economic growth and the boost from preparations for the Soccer World Cup," Bishop said.

Previous cuts in interest rates — which have amounted to a total of five percentage points — would help boost growth to 2.4 percent by then, quickening to 3.4 percent in the second quarter, she said. Her forecasts are seasonally adjusted and annualised, in line with data from Statistics SA.

Newspaper job adverts fell

Venter said eight of the 10 components of the leading indicator measured in June rose, showing its improvement was broadly based; residential building plans and newspaper job adverts fell.

Official data have shown that the economy shed 475 000 jobs in the first half, already far more than most expected. Employment is a lagging indicator, so further retrenchments are likely.

"SA's recovery is expected to be fragile and slow due to low levels of consumer and business confidence, falling disposable income and job losses," Bishop said.

Other analysts were a bit more upbeat. Absa Capital's Jeffrey Schultz said: "It's early days to say what we think about the third quarter, but a jump into positive economic growth of 0.4 percent is possible."

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