SA economic recession warning – the August BETI

For the second month in a row the BankservAfrica Economic Transaction Index (BETI) has increased when compared to a year ago, but indicates a shrinking economy both in monthly and quarterly changes.

he increase over August 2014 amounts to 2.9% while the monthly change reflects a decline of 0.6%. The BETI declined by 0.3% over the last three months (June, July, August) when compared to the previous three months (March, April, May).

“The BETI, which measures South African payment system transactions smaller than R5 million, is a good indicator of the current South African economy,” explains Mike Schüssler, Chief Economist at Economists dotcoza. “This month’s BETI also shows how volatile the South African economy has been over the last few years, with downward, negative periods followed by positive rebounds. The current apparent discrepancy between the positive annual change and the negative shorter term changes is caused by the initial low base of the BETI due to strike action in 2014, while the current decline is probably a result of lower commodity prices and power outages.”

In this context, with three of the last four months revealing negative trends in economic transactions, the BETI shows that the economy is, in all likelihood, in decline.

“With the BETI having a correlation of over 0.997 with the Gross Domestic Product (GDP), the last few declines are concerning. The chances of the South African economy now being in a recession is greater than 65% based on the reading of the BETI,” says Schüssler “Although the declines are relatively small, the cumulative effect is a negative trend, and is indicative of a slowing economy. While mining sales are often not recorded in the BETI, the likelihood of mining leading the current decline is strong, as commodity prices have fallen steeply since June this year.”

“The total number of transactions declined for the fourth time in the last 12 months, falling by 0.3% to 81.4 million. However, the average value of the transactions increased 6.2% to R8 329, making the standardised value R694.5 billion - an increase of 7.8% on August 2014”, says Dr Caroline Belrose, Head of Fraud and Data Analytics at BankservAfrica.

The September BETI could help confirm whether or not the South African economy is in recession. However unless there is a dramatic turnaround next month, the outlook is not looking promising, Schüssler concludes.