SA's negative economic trend gains velocity - economist


Cape Town - The negative trend in South Africa's economic cycle has increased its velocity and it is not looking good, Mike Schüssler, chief economist at Economists Dotcoza, told Fin24.

He was commenting on the latest BankservAfrica Economic Transaction Index (Beti) released on Wednesday.

The Beti shows just how deep the decline in the South African economy is.

"The Beti is a good co-incident indicator, which is confirming the overall decline in the domestic economy. Five of the last nine months have indicated monthly declines, coupled with four quarter-on-quarter declines," said Schüssler.

Therefore, the Beti is not indicating a strong economy, despite the fact that the base was set low due to strike action in 2014, making the annual changes seem stronger than usual.

The three quarters of 2015 will, in economic terms, be a negative story, and evidence suggests things are unlikely to turn around quickly.

Forecasts from official sources such as the International Monetary Fund and the South African Reserve Bank (Sarb) indicate much slower growth for 2015 and 2016. The Beti is providing the broad proof, including that the growth forecast may decline further.

Schüssler said part of the problem is that for the six months up to June 2015 SA industry had a net return on assets of 5.7%.

"That means companies have got a huge problem in trying to get motivated to undertake things like expansions as they can get a much better return by just investing in government guaranteed futures bonds or government bonds with a return of about 8%," explained Schüssler.

"So the problem is that profits are just not there. The impact comes particularly from mining and electricity. At the same time the whole global economy seems to have had a hiccup. All those factors have a very negative impact on the ability of SA's economy to grow," said Schüssler.

At the same time, he pointed out SA can take some quick action to help the economy grow.

Quick fixes for the economy

In his view the new visa regulations should be dropped so that more tourists can come to SA to take advantage of the value offered by the weak rand.

He also said relaxing aviation regulations to create "open skies" and to address the issue of taxes on cross-border trade could have a positive impact on economic growth.

He also pointed out that for the SA economy this is not a good time to have strikes.

"This is rather the time to make deals on the labour front. SA must also see how to get the structure of the economy right, for instance to deliver more efficient service," said Schüssler.

READ: Economy not really going anywhere - Schüssler

The Beti measures South African payment system transactions smaller than R5m, giving a broad picture of the current SA economy.

"While the Beti is still positive on where it was a year ago, the rate of growth is declining rapidly, and indicates that the economic activity over the short term is in retreat. This latest quarter was the weakest quarter-on-quarter change since November 2013," said Schüssler.

This month’s Beti indicates that monthly changes are also declining at the fastest rate.

"Three consecutive monthly declines are unusual when an economy is not in decline - this has happened only once in the last four years," he said.

"Officially the second quarter saw a decline, and a further quarter of decline would put the South African economy into a technical recession. The annual change is still positive as a result of a base effect. This, however, is misleading as most people are likely to be experiencing the effects of the current continuous decline in the economy."

He pointed out that the SA economy is being hit hard by lower commodity prices, low consumer confidence (as measured by First National Bank) and low business confidence (as measured by Rand Merchant Bank). The Standard Bank purchasing managers' index is also negative, as is Sarb's lead indicator.

There was a 3% year-on-year decline in the number of transactions as represented by the Beti, making this the second consecutive month of decline in the number of transactions. The actual number of transactions that make up the index was 83 million in September 2015.

But the total value increased by 5.3%, with the actual average value per transaction rising by 8.6%. The standardised value for the Beti was R709.2bn, the highest value since June 2015.

ALSO READ: Economy 'halfway back to treading water'

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