South Africa’s economic transactions contract further in October

10 November 2016 | Economy | General | BankservAfrica

The weak South African economy featured again in October 2016 where economic transactions shrank from a year ago in real terms, according to BankservAfrica’s latest Economic Transaction Index (BETI).

The month also reflected the most negative quarterly comparison for the BETI, declining by 1% on the quarter to July. The quarterly comparison has been in decline for six consecutive months.

The monthly decline was 0.9% between September and October - the same as the difference between September and August 2016.

While these do not necessarily confirm that the overall economy is in a state of decline, the BETI is known for indicating growth trends within the economy. The latest BETI results, if any, reflect the economy’s continuing downward movement. That said, it is also still too early to state that the overall economy is shrinking.

However, the signs are certainly leaning towards a further decline in the South African economy more than before. If economic activity levels decline again, it will be the second quarter this year in which the South African economy contracts.

It is concerning as the fourth quarter is usually a forecast of the likely performance in the next year - going by October’s BETI results, weaker growth can be expected in 2017. This is in line with the latest manufacturing Purchasing Managers’ Index, which indicates the manufacturing sector is in a state of decline. The latest take-home salary levels are under severe pressure, having a direct impact on subdued retail sales. Along with new car sales and real estate transactions, all signs seem to indicate the South African domestic economy is very subdued.

Although it is still too early to say that GDP growth in Q4 will be negative – it is evident that Q3 will be weaker than that experienced in Q2. This is clear from the BETI data as well as other sources of economic data.

The standardised transactions and volumes data

The standardised transactions fell to R764.7 billion in October from R774 billion in September. The number of transactions in the BETI was just over R88.4 million in October, lower than the previous month and that experienced a year ago.

Overall transaction volumes have also been in three months of total of decline in 2016. This alone reflects the South African economy’s weakness.

Graph 1: Changes in wholesale and retail sales compared against the BETI