SA economy remains resilient despite August strikes

The economy is stabilising on a “new normal” growth path of between 2.5% and 3%, and early signs indicate that not even the current strike action can dampen the economy’s spirits. This is according to the latest BankservAfrica Economic Transaction Index (

This is good news, but chief economist for economists.co.za, Mike Schüssler, cautions against excessive optimism, as this may not yet indicate an economic boom period.
“However, with many large regions (such as Europe and China) showing signs of recovery, there are certainly rays of sunshine breaking through around the world.”

Brad Gillis, CEO for regulated products at BankservAfrica agrees: “Reviewing the past eight months in South Africa, the BETI has consistently shown that the economy is breaking out of the stagnation of 2012. The BETI is giving us reason to hope for stability, even if it is at a lower, ‘new’ normal growth of up to 3%.”

The BETI in numbers

According to the BETI, the quarter-on-quarter percentage change in economic growth has been positive for eight months now.

Schüssler explains: “Similarly, the monthly changes have been positive for six of the last eight months, with only January and May showing declines.”

“Despite all the strike actions, the number of economic transactions was the third highest on record at 82.7 million, indicating that the underlying economy is still delivering fairly robust action. While transactions were down from the July record, the difference is partly due to fewer working days in August. It is still up compared to last year,” Schüssler says.

He believes the shorter term data shows a stronger trend which bodes well for overall current economic activity. “The activity is certainly stronger than we anticipated – as strikes would have been expected to show slower growth in economic activity, the trend still seems to be upward.”

“We believe that the BETI is still the quickest overall economic indicator that the country has as a result of BankservAfrica’s unique regulated payment system (which only a handful of countries have).

Effects of strike action

According to Schüssler, it seems that the effect of the strike action on the economy was muted in August, although the September figures may show a slower economy. “The fact is that, in August, transactions in the economy remained stronger than expected. I think the third quarter of 2012 revealed the underlying problems of the South African economy, which has, unfortunately, lead to declines in business confidence that still linger today.

“Perhaps the 2013 strike season is not as destructive. It certainly does not have the same shocking outcomes as those of last year. With some strikes settling faster than expected, the good activity trend will perhaps continue.”

Schüssler cautions, however, that the worst effects of the 2012 strikes were felt in September and October. The risk, therefore, remains that further weakness could return.

Confirmation from elsewhere in the economy

The Kagiso PMI also showed a stronger trend in August and reached its highest level since 2007. The BETI is supportive of this positive figure, although not quite as robust. With motor vehicle sales volumes down slightly – certainly partly due to the strikes – the BETI indicates that overall economic activity is still rising, making up for a large part of the motor industry strikes losses.

While inflation is on the up, interest rates are not expected to increase quite yet. The weaker rand is probably helping our local firms compete with foreign goods and services – at least on current prices – but higher inflation and weak motor vehicle sales certainly did lead to a massive decline in business confidence.

Electricity sales have also been more robust over the last four months. Extra capacity came online via Mozambique as demand for electricity became more robust. It is likely that the third quarter GDP may be a little slower than the second quarter; despite this the figures should still be in the region of 2.5% on a seasonally adjusted basis.

Expect higher consumer spending

With the July BankservAfrica Disposable Salary Index (BDSI) showing a temporary surge in real increases in disposable salaries, this may lead to higher consumer spending in at least some areas in the next month or so. This, too, should be supportive of economic growth.

“Generally speaking, the economy is in a much better place than in the second half of 2012. However, risks remain in the form of strikes and challenges in the international financial arena,” says Schüssler.

“The BETI has once again definitely been proved correct over the last few months, as GDP growth recovered to 3% in the June quarter from a dismal 0.9% in the first quarter.”