As the Minister of Finance, Tito Mboweni, prepares to deliver his Medium Term Budget Policy Statement (MTBPS) later this month, the latest data shows the South African economy requires urgent intervention as economic transactions reached depressed levels in September.
“The BankservAfrica Economic Transaction Index (BETI) grew by 0,5% year-on-year, but plummeted on a monthly and quarterly basis. The BETI declined by 1,6% between September and August – the most significant deterioration since April 2018. The quarter to September compared to the quarter to June contracted by 2,2%. This was the largest quarterly decline since June 2018,” says Shergeran Naidoo, head of Stakeholder Engagements: BankservAfrica.
“This fall is the most reliable indication that the economy may have contracted,” says Mike Schüssler, chief economist at economists.co.za. “It also indicates the South African economy is affected by the weaker global growth and reduced domestic demand in sectors such as vehicle sales.”
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 R882,3-billion 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 R8 621 from R8 271 on a year-on-year basis.”
The BETI, which has a high correlation to the South African gross domestic product, suggests an economic growth slowdown that will not bode well for the country’s Q3 2019 GDP figures in November. It is likely that the Minister of Finance will have less room to increase government spending and make provision for tax decreases when he tables his MTBPS at the end of October.
The Standard Bank Purchasing Managers’ Index (PMI) produced by Markit has shown five consecutive months of declines while Absa’s PMI reported the steepest drop in a decade. Overall vehicle sales remained lower than a year ago. The economy’s main confidence indicators remain in negative territory.
Business confidence fell to the lowest level in over two decades with South Africa’s main business role players 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,” says Schüssler. More information will also follow later this month in the BankservAfrica Take-home Pay Index.
“While it is not guaranteed at present, the BETI suggests the South African economy could be in another contraction period. According to the trend in the BETI data, SA’s Q3 2019 GDP has an 80% chance of a decline,” says Schüssler.