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Negative impact of downgrades starting to show - index

Jun 14 2017 17:27
Carin Smith

Cape Town - The negative impact of the sovereign credit rating downgrades at the beginning of April has started to take effect on the economy, according to the latest BankservAfrica Economic Transaction Index (BETI).

"Overall, the economy remains weak and, according to the BETI, the chances are good that the second quarter will again point to a declining economy. The possible impact from Moody’s sovereign credit rating last week to one notch above junk status may also be more apparent in the coming months," said Mike Schüssler, chief economist at Economists dotcoza.

In May the BETI declined by 1% on a month-on-month basis after four months of relative increases. On a year-on-year basis the BETI declined by 0.7% in May. This was a slower decrease than the 1.4% year-on-year decrease in April. On a quarter-on-quarter basis, the BETI showed a minor increase of 0.1%.

"While the BETI data in the first quarter of 2017 suggested improved economic performance, May’s decline is a strong signal that the domestic economy is again weakening. The BETI has had a very strong track record as a co-incident indicator and mirrors significant developments in domestic economic activity," explained Schüssler.

READ: FULL STATEMENT: Moody's downgrades SA

Recession

Last week, the SA economy was declared as officially in recession following Stats SA’s results of the gross domestic product (GDP) contracting by 0.7% in the first quarter of 2017.

According to Schüssler, it is likely that the effects thereof will become more visible in the BETI, which uses monthly economic transactions as captured by BankservAfrica. In the following months economic transactional activity is, therefore, expected to be lower than previously.

He pointed out that other economic indicators reflected similar movements in May. Although the Purchasing Managers Index (PMI) was in positive territory, no significant gains were noted for the month. New car sales were less positive in May with all major car segments registering declines.

The May BETI shows that the number of transactions picked up by 9.3% in May. This is partly due to May’s extended calendar days as well as the delayed payments that took effect on May 1 after the long weekend in the last week of April, according to the BETI report.

The average value per transaction fell by 1.1% in nominal terms, indicating that major economic players were more price conscious, according to the report.

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