BETI reveals there is light at the end of the tunnel

Good news may be hard to come by these days, but that is exactly what the latest BankservAfrica Economic Transaction Index (BETI) brings to South African consumers, showing that current predictions for this year’s economic growth may actually be on the co

Although the year-on-year figures remain gloomy, the February BETI indicates that the economy has been steadily showing higher growth for three out of four months, breaking the longstanding cycle of stagnating growth. Brad Gillis, CEO for regulated products at BankservAfrica, advises this could mean the end of the stagnating economy, which resulted in job shedding due to slower growth, is in sight.

“The economy has evaded a second recession, remained standing through the storms of slow growth, and negotiated some of the hardest-hitting strikes in decades. We may not be at the beginning of a full-blown recovery yet, but at the very least we are seeing an end to the declining growth cycle. Signs of life in the economy have become stronger than it has been in months,” says Mike Schüssler, chief economist at economist.co.za.

“This also means that the BETI is proving its worth as the first index to highlight changes in the economy. In our economic storm, the BETI has shown itself to be the sailor to first spot land.”

The period of strikes and the uncertainty around it, possibly cost the South African economy as much as 1% of its growth last year. Although the actual levels of growth lost will be debated for some time to come, the clear trend change is very good news for an economy that is desperately seeking stability and better growth to create employment.

Schüssler is confident that the darkest of economic scenarios are unlikely to come into play in South Africa.

“Stagnation is slowly lifting, so we are expecting average growth rather than recession at present. This is good news, and a giant step in the right direction. If this continues, many current economic growth forecasts may prove to be on the conservative side.”

The downside of the BETI figures – year-on-year declines

Schüssler points out the BETI once again shows a dramatic loss of economic momentum over the last year, as the headline economic growth declined to less than 1% for the first time in nearly three years.

“However, this small improvement over the last year is a bit misleading, as the quarter-on-quarter growth in economic transactions has been improving. Much of the weakness in the published BETI has more to do with very weak growth between May and October of 2012,” he explains.

“Yet this declining trend now appears to be waning as a slight increase in growth is now visible in the quarterly and monthly figures, as well as in the volatile raw data.”

Schüssler expects that quarter-on-quarter GDP growth will in the short term be more positive, but that year-on-year GDP growth figures will still show a declining growth trend, until these catch up with the more recent stronger growth phase.

Why the specialists are positive

While month-on-month increases are rarely rated as strong trend signs, the improvement between February and January is the strongest monthly improvement since April last year. At the very least this shows that the economy has stabilised at the present low levels, rather than sinking lower.

All signs point towards GDP growth in the first quarter of 2013 being stronger than both the third and fourth quarter of last year, although the levels are likely to remain below the rate of the second quarter of 2012.

“The facts on the ground indicate that the effect of the wildcat strikes is now behind the South African economy,” says Schüssler.

“The marginalisation of radical policies – such as nationalisation – has probably given a boost to confidence across the economy, and economic factors are most certainly reacting on this information.”

Due to the national budget coming out at the end of the month and probably having very little effect on the actual BETI, the budget at least confirmed that South African macro-economic stability is still the main aim of the fiscal authorities. This should help anchor growth expectations slightly more positive than last year.

“The turn in the BETI, if confirmed within the next two to three months, may in fact indicate that the 2.7%-growth expected this year could turn out to be on the low side. All we can say at this stage is that the continuous slide in the growth rate of economic activity seems to have been arrested. It would be a very rare achievement if this were not to be the case,” says Schüssler.