Author: Mike Schussler Source: BankServ Africa
The South African economy is now officially at risk of going into a recession, as the BankservAfrica Economic Transaction Index (BETI) for May has dipped below zero after five months of declines.
"Not even accounting for the two extra working days in May (compared to May last year), or spending around the election and induction of the President could prop up the numbers. The possibility of a recession may not be a hard fact yet, but economic transactions overall are now starting to show that all is not well, explains Mr Mike Schüssler, Chief Economist at Economists.co.za.
"Furthermore, historically the BETI shows significant declines in the month after big strikes end. This happened both in 2012 and 2013. With the jury still out on the platinum strikes, we definitely have not seen the bottom of the BETI yet. This does not bode well for economic performance over the next few months."
Mr Michael Rubenstein, Head of Corporate Reputation at BankservAfrica, says the decline in itself is not the real concern but the continuous declines the BETI index has shown over the last five months.
"This, rather than a once-off event, is the problem for the SA economy."
He says the actual monetary value of all the transactions grew at 1% before adjusting for inflation - which is very weak - while the number of transaction increased with 2.5%, indicating that the average value per transaction is falling even in nominal terms.
The number of transactions is 84.2 million - the third highest on record - but this may have to do with other spending obligations - like e-tolls - rather than an increase in actual economic activity.
Tough times ahead
The BETI is a near-casting indicator and is probably a little ahead of the co-incident indicator - by a month or so. Schüssler says this does not indicate a further GDP decline with certainty, but it does make it more likely.
"There is no “golden rule” between the BETI and GDP growth in exact terms but it is clear that the year-on-year GDP will decline to a lower level, given the historical connection between the two.
"With other indicators such as the manufacturing PMI and car sales dropping significantly in May, the BETI is confirming the downward trend across the whole of the economy."
The services PMI from HSBC is also still in negative territory and the latest information from indicators such as petrol sales show a decline from a year ago, even with falling prices. The only encouraging factor is the positive internet traffic growth over the last year.
"While the big sinner in all of this is probably the platinum strike, the fact is that the broader economy is now also starting to feel a little unwell. Maybe the heartache of the strikes is starting to become a migraine for the economy.
"Overall the effect of the strike is spreading as the BETI surveys the whole economy and would be a broader indicator of economic health than just mining. There are signs of ill health within the broader parts of the whole economy."
Further danger signs
With other potential and actual strikes also coming to the fore, the SA economy is showing more and more signs of decline. With international commodity prices of South African exports also in decline, the added pressure is tipping the balance in favour of further shrinkage of the economy.