10 Aug

Weaker inflation ups real South African economic transaction activity

transactional activity

Cape Town – For the first time in 10 months, economic transactional activity in South Africa picked up in real terms on a year-on-year basis in July, according to the latest BankservAfrica Economic Transactions Index (BETI) released on Thursday.

According to the BETI report it was mainly due to weaker inflation.

At the same time the index reflected slow growth on a quarterly and monthly basis.

The monthly transactional activity – as measured by BankservAfrica’s national payment system – for July showed a 0.6% year-on-year increase in the actual value of transactions.

“This change is the result of a very weak July 2016 which saw the transaction values fall out of the current annual numbers. Therefore, the annual increase is a ‘base effect’ that lifts the actual index numbers above last year’s lows,” explained Mike Schüssler, chief economist at Economists dotcoza.

The quarterly numbers are negative due to the very low May 2017 BETI numbers and follow from the sovereign credit rate downgrades for SA by the global ratings agencies.

Schüssler told Fin24 that the BETI shows how the uncertainty in the SA economy is just dragging on. It makes consumers hesitant about spending. They might, for instance, rather opt to buy a cheap laptop, eat at fast food outlets perceived to be less expensive than restaurants and shop at general merchants rather than upmarket stores.

“They will buy cheap, because their outlook is rather shorter term,” said Schüssler.

The same tendency goes for businesses, where they would, according to Schüssler, rather buy stock in smaller quantities and more often than in big quantities.

“The uncertainty created in the run-up to the downgrades and the changing of the minister of finance, has grabbed hold of SA businesses and creates a problem for all of us. Everybody rather buys something they can pay off in two to three months than taking on long term repayments,” said Schüssler.

“They are watching their costs and do not want to take on more risk.”

Between June and July, the BETI declined by 0.2%. This, however, is minor in comparison to other monthly declines since 2015.

In July, the number of transactions increased by 6.7% on a year-on-year basis, but the average value per transaction declined by 1.3% on a year-on-year basis. The standardised value of transactions for July was R789.2bn, a 5.4% year-on-year upturn.

In the last 43 months, 21 of the monthly changes in the BETI have been declines and one month had no change, while the other 21 months showed increases. These are all indicative of a flat economy, according to Schüssler.

“There is hope that further interest rate reductions will boost consumer confidence and a better understanding of the economic situation by policymakers will help the SA economy,” he said.