SA economy ‘in decline’

Lesotho Times
4 Min Read


South Africa’s economy contracted by 1.3 percent in the second quarter of 2015.JOHANNESBURG – South Africa’s economy is shrinking, according to the latest BankservAfrica Economic Transaction Index (BETI), which could signal that some commentator’s fears over a pending recession are coming true.

Although the index has gained on last year, it is showing a shrinking economy both in monthly and quarterly changes.

Warning bells about a possible recession have already been ringing, with economist and chief strategist at Investment Solutions, Chris Hart, saying in July that the country was heading for a “full blown” recession.

Last month, second quarter gross domestic figures showed the economy had contracted by 1.3 percent, which means – if the third quarter also contracts – the country will be in a technical recession.

Many consumers already think that is the situation as, earlier this month, a Nielsen’s consumer confidence index report for the second quarter showed 73 percent of respondents believe the country is already in an economic slump.

The BETI for August showed a year-on-year gain of 2.9 percent, but the monthly variance was a 0.6 percent decline. The index also declined 0.3 percent between June, July and August when these periods are compared to the previous three months.

Mike Schüssler, chief economist at Economists dotcoza, explains the index – which measures South African payment system transactions smaller than R5 million – may have increased year-on-year, but this figure masks the true picture.

The BETI is the earliest indicator of the broad business cycle on the economic calendar and gives the quickest overview of growth trends.

Schüssler explains the apparent discrepancy between the positive annual change and the negative shorter term change is caused because the BETI came off a low base last year because of strike action, which marred economic growth. The BETI is also currently affected by lower commodity prices and power outages, he says in a statement.

Like the Swift Index, the BETI is considered a “now-cast” number as a result of its speedy ability to convey the overall economic conditions to the market. Where most economic indicators can take anything between 38 and 76 days to become public knowledge, now-cast indicators take less than a month after the facts were revealed to come to the market.

“This month’s BETI also shows how volatile the South African economy has been over the last few years, with downward, negative periods followed by positive rebounds.”

Because of this, says Schüssler, the economy is, in all likelihood, in decline. He points to the fact that three of the last four months have showed negative trends in economic transactions to back this up.

The bulk of SA’s economy is driven by consumer spending, which accounts for more than 60 percent of GDP.

The chances of the South African economy now being in a recession is greater than 65% based on the reading of the BETI,” says Schüssler.

“Although the declines are relatively small, the cumulative effect is a negative trend, and is indicative of a slowing economy. While mining sales are often not recorded in the BETI, the likelihood of mining leading the current decline is strong, as commodity prices have fallen steeply since June this year.”

The September BETI could help confirm whether or not the South African economy is in recession. However unless there is a dramatic turnaround next month, the outlook is not looking promising, Schüssler adds. – IOL


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