The economy is in a bad space because of weaker global growth, which affected domestic sectors such as vehicle sales, resulting in September seeing the lowest level of economic transactional activity in over a year, says Mike Schüssler, chief economist at economists.co.za.
Schüssler was commenting on the latest BankservAfrica Economic Transaction Index (Beti) for September, released yesterday. The index increased by 0.5 percent year-on-year but plummeted on a monthly and quarterly basis. The Beti declined by 1.6 percent between September and August, the most significant deterioration since April last year.
The quarter to September compared to the quarter to June contracted by 2.2 percent. This was the largest quarterly decline since June 2018, says Shergeran Naidoo, the head of stakeholder engagements at BankservAfrica.
The latest data shows that the economy requires urgent intervention.
“What this is indicating is that there is very little economic activity in September and that South Africa is really in a bad space at the moment, because this is the biggest decline that we have seen in more than a year in a month-on-month basis.
"It is the biggest decline in a year on a quarterly basis. It suggests we could see a decline in gross domestic product (GDP), but the other indicators are showing us the same thing. We’ve got a year-on-year fall in car sales; we had the biggest drop in the PMI (purchasing managers’ index) and manufacturing in 10 years,” says Schüssler.
There were declines in the value of transactions. “September’s Beti data reveals that the nominalised value of transactions reached R876.1 billion in September, lower than the R882.3bn in August,” says Naidoo.
As the standardised nominal value takes the number of weekdays and weekends, along with holidays, into account, the decline in the nominal value of transactions for the third consecutive month is a concern.
“The number of transactions dropped to below 100 million after two months at 104 million,” says Naidoo. “Interestingly, the average value per transaction increased to R8621 from R8271 on a year-on-year basis.”
The Beti, which has a high correlation to GDP, suggests an economic growth slowdown that will not bode well for the country’s third-quarter GDP figures in November. It is likely the minister of finance will have less room to increase government spending and make provision for tax decreases when he tables his Medium Term Budget at the end of October.
Schüssler says it was not only South Africa that was experiencing a slowing economy; world trade had seen its biggest decline since 2008/9.
“This is not an easy time period, and although the rand may have made a bit of a comeback and some other financial indicators, the fact of the matter is that we are looking at a decline overall in the economy at the moment,” says Schüssler.
He says the outlook for the remainder of the year did not look good. Many companies were not making enough profit to pay year-end bonuses or award increases, although some sectors were faring better than others.
Schüssler says the outlook could improve later this year, particularly when consumers take advantage of specials on Black Friday in November.
Business confidence fell to the lowest level in more than two decades, with South Africa’s main business roleplayers sharing the sentiment that inaction by leadership is costing the economy.
“The Beti data also suggests that the downward phase of the business cycle has reached 70 consecutive months.
"In this period, population growth remained higher than economic growth and indicates economic stagnation is reducing average South African incomes. While it is not guaranteed at present, the Beti suggests the economy could be in another contraction period. According to the trend in the Beti data, South Africa’s third-quarter 2019 GDP has an 80 percent chance of a decline,” says Schüssler.
“One must just not get too negative or despondent, because this is just a very quick indicator - it is a dipstick of our economy. Things are not easy out there, but if you just get one or two things good and ready and implement a few things of Mr Mboweni’s plan that would have a huge positive impact for the economy,” says Schüssler.