SA has heightened chance of going into recession - Mike Schüssler

(iStock)
(iStock)

Although he is "a bit scared" to say the South African economy could already be in a recession, the chances of it happening are indeed increasing, Economists.co.za chief economist Mike Schüssler told Fin24 on Thursday.

The globally accepted definition of a recession is two quarters of decline in gross domestic product (GDP). Earlier in June, Statistics South Africa announced that real GDP fell by 2.2% in the first quarter of 2018.

Now the latest BankservAfrica Economic Transaction Index (BETI) for May shows a 2% decline.

Schüssler cautioned that a worrying picture could be emerging if one looks at what the BETI data reflects.

"Currently, indications are that we have a very weak economy and the weakness might carry on. The business cycle is in a very long downturn. Everybody is under pressure," said Schüssler.

He believes value-added tax increases, higher fuel prices and the tax on sugary drinks have all taken their toll on consumers, leading to a notable decline in the number of transactions taking place in the country in May.

This was worsened by the bus strike, which impacted people’s ability to earn a living.

On top of this, Schüssler said, ongoing government wage negotiations as well as wage talks at Eskom are "affecting the formal sector’s wages and dragging down consumer spending ability". 

"The average South African consumer is once again under pressure, and the high levels of confidence experienced in the first quarter of the year are likely to be lower on the back of the latest cost burdens."

The BETI for May reflected the most significant noticeable monthly decline since December 2016, Schüssler added.

The 2% decline between April and May is the largest drop since September 2013 and clearly reflects a weakened local economy, said Shergeran Naidoo, head of stakeholder relations at BankservAfrica.

For the second time in the history of the BETI, the number of transactions was above the 100 million level, said Naidoo. While this could have been a good sign for the economy, the downside is that the average value of transactions declined by 4.1%.

Schüssler believes this could be a result of the BETI and GDP declines speeding up. However, he cautioned that it is too soon to assume this month’s drop is a long-term trend.

This is the 13th consecutive month in which such declines occurred.

BankservAfrica is a payment enabling organisation operating between the various South African banks. The BETI is regarded as providing a broad overview of current economic trends over a broad range of sectors, making use of economic transactions as captured by BankservAfrica.

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