A decline that may just be a turning point - BankservAfrica Index

The South African economy remains fragile, but less than before, according to the latest BankservAfrica Economic Transaction Index (BETI). The irony of this statement is reflected in the numbers. While the economy declined by -1.4%, it is less than the August decline of -3.2%.

"This decline, then, is good news in the sense that it shows an economy trying to bounce back," says Michael Rubenstein, head of marketing and corporate reputation at BankservAfrica. "Let's hope that this signals a turning point in the economy, to get us back to slow growth."

The BETI numbers

The total number of transactions used in the BETI increased by 7.4% year-on-year to 85.5 million, the highest number ever. "When taken into account that September 2014 had 21 week days, this increase is meaningful,” says Rubenstein. "This is the strongest increase in the number of transactions since July 2013 and certainly indicates that economic activity is growing again.The number of transactions increased to a record high of 8.6% in nominal terms, which was higher than inflation. However, the average value of these transactions increased by only 1.2%. Time will tell if the economy can get back into a positive momentum.

Fragile improvement

Mike Schüssler, chief economist at economists.co.za says while a smaller decline is certainly a massive improvement for the South African economy, the BETI shows that the economy is still fragile. "The whole third quarter declined over the second quarter of 2014 but this does not mean that the economy is back in negative territory. Rather, economic growth will remain weak and probably at levels of around 1%," he says."The BETI saw a far more normal month in September transactions than July or August 2014. The BETI indicates that, despite being in decline, the economy is getting back onto its feet and may start to crawl along again soon."
Schüssler says that while the data still indicates a decline after the effect of inflation is taken into account, the fact that the decline has more than halved shows that the economy is eager to get back to growth, albeit slow growth. "The economy is at long last showing signs of life rather than decline."

Other factors

Also helping the economy in September has been a steep drop in petrol prices, which will help consumers recover slightly. With wage increases slightly above inflation, the economy will also benefit. Furthermore, better export earnings from the motor industry and tourism are at least partly offsetting the decline in commodity prices. Schüssler says overall exports are recovering partly from the massive strikes and that will also help bring a more stable economy. One can also expect that increasing tourism numbers in the summer may have a more positive impact. Car sales jumped by 11% in September, but were largely driven by rental and industry sales rather than consumer sales. The PMI also swung into positive territory, but by no means is the bounce-back strong enough to drag manufacturing out of its current soft phase.

"The chances are now much better that the economy comes back positively in the fourth quarter of 2014. That would be a return to the second half of last year where the 3rd quarter was weak but as strike action stopped, the economy bounced into life with nearly 4% growth in the fourth quarter,” he says.