SA recession could be likely - index

Carin Smith

Cape Town - The BankservAfrica index released on Wednesday reveals that South Africa's economy could shrink in the third quarter, technically pulling the country into a recession, according to Mike Schussler.

For the second month in a row the BankservAfrica Economic Transaction Index (Beti) increased when compared to a year ago, but indicates a shrinking economy both in monthly and quarterly changes.

The Beti, which measures SA payment system transactions smaller than R5m, is a good indicator of the economy, according to Schussler, of

The increase over August 2014 amounts to 2.9%, while the monthly change reflects a decline of 0.6%. The Beti declined by 0.3% over the last three months (June, July, August) when compared to the previous three months (March, April, May).

“This month’s Beti also shows how volatile the South African economy has been over the last few years, with downward, negative periods followed by positive rebounds,” said Schussler.

“The current apparent discrepancy between the positive annual change and the negative shorter term changes is caused by the initial low base of the Beti due to strike action in 2014, while the current decline is probably a result of lower commodity prices and power outages.”

Schussler pointed to the latest RMB/BER Business Confidence Index, which shows business confidence in SA has declined further in the third quarter of 2015, also raising fears of a looming recession.

Although the economy is slowing in the short term, Schussler siad SA is still likely to have positive year-on-year growth rate.

"So, the evidence is gathering pace that the economy might be shrinking for a second quarter in a row. Many other commodity exporters like Brazil and Russia also have contracting economies," explained Schussler.

At the same time he says there are many things that can be done - especially by government - to improve the current economic situation. These include fixing the electricity problems, allowing an open skies policy for airlines and bringing down the costs of cross border trade with neighbouring countries.

Another step in the right direction would be to restore business confidence.

"Business needs a bit of a good news story or two to stand out there. Government must think innovatively and progressively and put money into the right infrastructure. People act when they are more confident and government can increase confidence by doing innovative things," said Schussler.

"And who knows, then the bright light at the end of the tunnel might not be a train, but Eskom working."