The SARB Leading Business Cycle Indicator for August has been released. Its growth direction is not only useful as a leading indicator of near term economic growth direction, but also often as an indicator of where new mortgage lending is going in the near future.
The August 2018 SARB (Reserve Bank) Leading Indicator showed a second consecutive month of month-on-month decline, to the tune of -0.5%, and the second consecutive month of year-on-year growth slowing, from +5.1% in June to 1.5% 2 months later.
This recent slowing comes after a year-on-year growth acceleration from late-2017 up to June 2018.
Both global and domestic economic factors were responsible for the month-on-month decline. Commodity prices of key South African exports were listed by the SARB as a negative along with the Leading Business Cycle Indicators of South Africa’s main trading partner countries. The indicator suggests that, while some mild growth improvement in the third quarter just past cannot be ruled out, looking forward in the near term we should expect the economy to remain sluggish.
More importantly from a mortgage lender point of view, however, the direction in year-on-year growth is very often a near term leading indicator of year-on-year new mortgage lending growth.
On a quarterly year-on-year basis, the leading indicator’s growth has slowed from 4.4% in the second quarter of 2018 to 1.47% for the third quarter to date. This is a resumption of the broader slowing growth path after a high of 6.43% as at the first quarter of 2017.
The slowing growth in the leading indicator suggests further near term slowing in growth in the value of new mortgage loans granted (includes residential, commercial and agriculture combined). This growth in new loans granted has already slowed from 11.7% year-on-year in the first quarter of 2018 to 6.1% in the second quarter.
The slowing growth in the second quarter was driven by a commercial mortgage lending growth slowdown, while the residential component still attempted to defy economic gravity in the second quarter.