Although our new Minister of Finance denies it vehemently, South Africa is at risk of going into a recession, according to BankservAfrica’s Economic Transaction Index (Beti) released this morning. This was after the Beti for May dipped below zero after five months of decline.
“Not even two extra working days in May, spending around the election, and the inauguration of the president could prop up the numbers,” economists.co.za chief economist Mike Schüssler said in a statement. “Although the possibility of a recession may not be a hard fact as yet, the overall economic transactions are starting to show that all is not well.” Schüssler noted that 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. BankservAfrica corporate reputation head Michael Rubenstein, said May’s decline was not the real concern, but rather the continuous overall decline the Beti had shown over the past five months.
The actual monetary value of all transactions grew one percent before adjusting for inflation, while the number of transactions increased 2.5%. Rubenstein said this indicated that the average value per transaction was falling even in nominal terms. The number of transactions was 84.2 million, which was the third highest on record. “However, this may only be due to new spending obligations, such as e-tolls, rather than an increase in actual economic activity. Tough times ahead,” he said.
Schüssler said the Beti was a near-cast indicator which was a little ahead (by a month or so) of the co-incident indicator. This did not indicate a further gross domestic product (GDP) decline with certainty, but it made 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, especially given the historical connection between the two,” said Schüssler.
With other indicators, such as car sales dropping significantly in May, the Beti confirmed the downward trend across the South African economy. The only encouraging factor was the positive internet traffic growth over the past year. “While the big culprit is probably the platinum strike, the fact is that the broader economy is also starting to suffer,” he said. “Overall, the effect of the strike is spreading as the Beti surveys the whole economy…” Schüssler stated further that the Beti historically showed significant declines in the month after a big strike ended. “This happened both in 2012 and 2013. With the jury still out on the platinum strike, we definitely have not seen the bottom of the Beti’s decline yet, and this does not bode well for economic performance over the next few months. “With other potential and actual strikes also coming to the fore, the South African economy is showing more signs of decline,” he said.
Minister Nene, Ignorance is not always Bliss and a Minister can also leave his office before the term ends!