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Cape Town – South Africa’s economy is stagnating, according to economist Mike Schüssler, after the BankservAfrica Economic Transaction Index (Beti) released data on Wednesday showing that the country was, once again, on the verge of a declining economy.
In this story:
- AUDIO: Fin24’s Matthew le Cordeur interviews Mike Schüssler, chief economist at economists.co.za
- INFOGRAPHICS: Explore the interactive graphs that delves deeper into the data
“I think we are in a very strange place at the moment in the economy,” he said. “We really have not seen any great move forward with our economic growth and job creation. We clearly are not in a recession, but in a very weak position. Stagnation is the word that comes to mind.
"That stagnating effect is starting to play out in many spheres, whether it be on the rand and the stock exchange, or in immediate indicators and not always due to the South African economy, right through to motor vehicle sales and the sales and transfers of housing stock, … so we are starting to see a lot of the strains."
However, he said that “perhaps with the worst happening now, the chances of an uptick later in the year is more likely”.
Effect of strikes
It reveals that the economic recovery after the protracted strikes earlier this year will not be business as usual, as the Beti showed that the cracks were spreading from mining to other sectors of the economy.
In August, the Beti showed its first ever decline in the number of transactions recorded in an economic malaise that was echoed by the manufacturing and services sectors, as well as car sales.
“It seems as if South Africans are dealing with the economic pressure by avoiding taking their bank cards from their pockets,” said Michael Rubenstein, head of corporate reputation and marketing at BankservAfrica.
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The numbers
The total number of transactions used in the Beti decreased by 1.3% year-on-year to 81.6 million.
The total value of transactions was R640.2bn; an increase of only 1.4% in nominal terms and far below the estimated inflation rate. The average value of transactions increased on last year by 2.8% to just under R7 900.
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A number of firsts
According to Rubenstein, the number of real economic transactions declined at the fastest rate in four and a half years. The August Beti stood at 120.3, which was 3.2% lower than a year ago.
"This is the biggest annual decline since February 2010 when the South African economy was just emerging from recession,” he said. “It is also the first time that the total number of debit transactions has declined year-on-year for two consecutive months since the Beti data started in 2002."
Month-on-month, the Beti also saw a sharp 1.2% decline, indicating just how weak transactions underpinning the economy have been in August. This was the biggest monthly decline since January this year.
"Seven of the last 12 months have seen monthly declines while only five have seen growth in economic transactions," said Rubenstein.
The quarter-on-quarter data also declined by 1%, which was the first quarterly decline since March. Six of the last 12 Beti releases have seen quarterly declines.
Not just about the strikes
Schüssler said the declining numbers followed a trend where the weakest month in an economic cycle was the one after a strike has ended.
Payments to the people concerned would generally not yet have taken place and, very often, a protracted strike had a much longer lasting effect than just the actual payments of the firms and workers involved.
"The bad news here is that the weaker Beti indicates that the broader service economy is now as much in the doldrums as manufacturing and car sales.
"All the data from the economic transactions that have taken place in August show a domestic economy that is weak and uncertain. Higher inflation has certainly taxed consumer and enterprise budgets more than in the recent past," Schüssler said.
"There seems to be a negative long term trend. The economy is flat and going nowhere. Treading water is not something an economy does well, and the longer term declining nature is leading toward frustrating economic outcomes."
What we are hoping for
The full production of the platinum mines, which had the longest major strike action in South African economic history, was only likely to return in the fourth quarter, while the metal industry was only likely to get full production back by September.
Schüssler said now that major strikes seemed to be over for 2014, it should enhance confidence again. The inflation rate has probably peaked in the short term and with the fuel price decreasing, South Africans may have a little more discretionary spending power.
"Although the full recovery of the economy is only expected later in the fourth quarter, the risks are higher than usual when looking purely at the Beti data."
- Fin24
