Uptick in economy not yet reason to rejoice – BankservAfrica Economic Transaction Index

Although South Africa seems to have avoided a technical recession, the growth spurts on the economic radar are sporadic and not yet enough to lift the country out of the economic stagnation that has been with us for a couple of years now. This is according to the latest BankservAfrica Economic Transaction Index (BETI).

Michael Rubenstein, head of corporate reputation at BankservAfrica, says the BETI shows that the economy recovered a little in June 2014, "but not enough to stop the economic decline."
In June, the BETI declined by 0.5% on a year ago (which is less than the month before), despite a somewhat stronger quarter-on-quarter growth of 1.4%.

"The fact that the strike in the platinum sector ended probably had very little influence on the BETI in June, so we believe that the stronger monthly improvement must have come from sectors outside of manufacturing and mining," says Rubenstein.

"While economists will say the improvement still does not take the economy out of stagnation territory, the fact remains that slow growth is much better than decline. It is too early to ask whether the economy has now reached a turning point, but at least we once again have a quarter of growth (albeit slow) during a long strike-interrupted year where growth was ever-decreasing."

Curious timing of the uptick

Mike Schüssler, chief economist at economists.co.za, finds the timing of the improved growth strange – even though it is supported by PMI data. There was also a smaller year-on-year decrease in car sales in June.

The trend in the BETI also fits the latest FNB/BER consumer confidence data, likewise showing a surprising jump. Even the impact of the long-running strike in the platinum industry seems to have been muted.

"The reason for the uptick may be that people who have held back on buying things or increasing inventories may just have been unable to delay purchases any longer. Or perhaps consumers were more relieved than expected by the short-lived decline in the price of fuel in the last two months.

"The other trend, however, is that the BETI seems to show the weakest data in the month after big industrial action ends," says Schüssler.

With even more industrial action presently underway, it is likely that the weakest BETI growth numbers may still be ahead of us – especially when considering that the actual working days lost in the first half of the year, due to industrial action, are estimated to be around 9 million.

"It is important to note that a large piece of our headline number seems to have more to do with the poor, strike-laden performance in 2013 rather than with the robustness of the last few months. The current growth is not fast and it is also not certain. Therefore, the best we can say is that a technical recession was avoided.”

"This is probably a sign of relief to policy makers and consumers alike. However, the resulting growth is unlikely to be better than population growth – therefore, we can still expect 1.5% which will mean that the annual year-on-year GDP growth rate will still be in a slower growth trend."

The nominal standardised data

The actual monetary value of all the transactions grew year on year by 9.7% (before adjusting for inflation), which is very strong. At the same time, the number of transactions increased by 7.3%, which indicates that the average value per transaction is marginally increasing again in nominal terms.

“The number of transactions is 80.3 million, which is the lowest since February. However, June seems to be a low transaction month overall. This may also have to do with the fact that there were only 20 working days in June,” explains Rubenstein.

The BETI indicates that the underlying economy seems to be stronger in June than it was in May 2014, but the problem is that its overall strength is still weak.

Despite a small uplift in nominal terms, the actual value of transactions in real terms were lower than a year ago, still indicating a stress level of businesses and consumers that is not lower but higher. In real terms, the value of transactions would have fallen by about 7.5%. This shows that, while consumers are perhaps more confident, consumers and companies are still cautious when it comes to spending.

Future prospects

In the first quarter of the year, the official year-on-year growth was recorded at 1.6% and the BETI indicates that this could be somewhat lower in the second quarter. Simply based on the statistics that the index shows are likely, it is clear that the annual change on a year ago is probably going to be lower than 1.5% in the second quarter.

The BETI further indicates that second quarter growth should be between 1 and 1.5%, which means GDP growth for the year up until the second quarter is probably going to be around 1.3%.