In partnership with
  • The Ramaphosa Plan

    The president said on Friday that the work "starts now". He wasn't wrong, writes Pieter du Toit.

  • Stimulus recap

    Seven key points in the president's package of economic reforms and spending plans.

  • Supporting role

    Meet the members of President Cyril Ramaphosa's new 10-person advisory panel on land reform.

Loading...

SA may go into technical recession - Mike Schüssler

Jul 11 2018 19:04
Carin Smith

Economists and political analysts might not have grasped the full extent of the loss of confidence in South Africa, how deep corruption really was and how hard it would be to turn around this "identity crisis", according to economist Mike Schüssler.

He was commenting on the latest BankservAfrica Economic Transaction Index (BETI), released Wednesday, which indicated that the SA economy still seems to be contracting. 

The BETI aims to provide insight into "actual real economic activity on the ground" by measuring the constant value of inter-bank transactions in the SA economy.

"We did not understand how deep the rot really was in South Africa and how difficult it would be to turn the economy around. Maybe we did not realise how many years of high electricity and water prices [were] ahead of us," he told Fin24. 

"We have also been hit by higher petrol prices, while our commodity prices are down." 

Schüssler said the economy was not showing signs of picking up. 

"There are indicators that the SA economy is certainly not getting any better," he said. "I don't want to call it a recession right now, but at this time it looks like we could enter a technical recession. And even if we do not enter such a technical recession, it is not as if the economy will grow much, as indicated by data from, for example, the Purchasing Managers' Index (PMI)." 

Going into a technical recession, he added, would be something that "should not be happening while the rest of the world is growing".

A technical recession follows two consecutive quarters of negative GDP growth.

Quarterly contraction

According to the latest BETI, the quarterly decline in economic transactions in Q2 was the largest since 2013.

While June 2018 showed a month-on-month decline of 0.1%, this was overshadowed by the concerning quarterly decline of 1.9%. It was up 0.2% year-on-year. 

Overall, the BETI indicated that the SA economy is not in a recovery mode, and sustained growth was still eluding the country.

The index found that interbank transactional levels were back to those of January, which it argued reinforced the timid nature of the SA economy at present.

Reasons for the slower activity in the SA economy, according to the report, included lower commodity prices and the Purchasing Managers’ Index dipping below 50 in June 2018.

At the same time, the report stated there was hope of improved crop estimates due to the better seasonal rainfall in the Western and Eastern Cape.

"However, with business confidence again declining and power disruptions on major trucking routes, the economy is unlikely to absorb enough job seekers as y/y growth is likely to disappoint."

Average value declining

A trend the BETI picked up was that while the number of transactions continues to grow, the average value for these transactions was declining on an ongoing basis.

To Schüssler this could be an indication that people are, in the main, trying to mitigate risk.

"I think the confidence is just not there. The average value of a transaction has been falling for the past 13 to 14 months.

"This maybe shows that people are buying things in smaller amounts, keeping stock levels lower, so as not to be stuck with extra stock.

"It could also be that poorer people, smaller players and the self-employed are getting involved in the economy," he said.

The index report points out that the timing between the release of the monthly BETI and South Africa's quarterly GDP data was sometimes "out of sync".

* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER

Follow Fin24 on Twitter and Facebook. 24.com encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

NEXT ON FIN24X

 
 
 
 

Company Snapshot

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...

Voting Booth

What do you think of President Cyril Ramaphosa's economic stimulus plan?

Previous results · Suggest a vote

Loading...