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Economic activity sees second month of recovery – BETI

Mike Schüssler, chief economist at Economists.co.za, ‘would open the whole economy’ now.

NOMPU SIZIBA: BankservAfrica’s Economic Transactions Index shows a significant uptake in financial transaction activity in July. The BETI reading for the month was 112.4 points, which was up 9.6% on the month of June. While a positive development, the contributing economist to this index warns that there remain tough times in the South African economy and, for those active in it, with the value of transactions down 9% on the year prior.

Well, to take us through the BETI and more I’m joined on the line by Mike Schüssler, the chief economist at Economists.co.za. Thanks very much, Mike, for joining us. With the gradual easing of lockdown restrictions, it does seem that the BankservAfrica Economic Transactions Index has also improved, and quite materially so. So just break down the July number for us.

MIKE SCHÜSSLER: Well, if you look at a month ago and a quarter ago, in both cases the increase is around 9%. In both cases it is the biggest increase we’ve ever, ever seen, and that is a very strong recovery in anybody’s book, from a low base. That’s where our problem comes in, because we are still at about 9% of the high of a year ago. So that leaves me to wonder how much more catching up we’ve got to do. I looked at the numbers and we’ve caught up about 56% in July of what we lost from, say, January, because one’s got to look at it in those sort of terms.

I think that 56% upward movement is great – and we expected a bounce. We do expect the recovery to continue, but at a bit of a slower pace going forward. Probably on a monthly basis the quarterly might still lift up, but we’ve got to be just a bit careful because that last 2% or 3% is going to be very difficult. For one example, if you look at international tourism, those people also come in with credit cards, also use our ATMs, also those hotels are buying from suppliers for those tourists, and so on. They’re not coming back very quickly. So we know that the last part is going to take the longest. But at least the good news is that the South African economy has maybe started getting back.

Let’s put it this way. This was such a big fall, it was perhaps on its stomach; it’s now on its knees. And it’s busy getting up onto its feet, but it’s going to be walking with a bowed head for another few months at least.

NOMPU SIZIBA: So Mike, to what extent will the rise in transactions that we saw in July have been boosted by some of the relief that was provided by the government, the private sector – particularly in the form of things like payment holidays?

MIKE SCHÜSSLER: I tried to work it out a hundred percent in this thing and from the UIF and from Sassa’s extra grants we’ve been seeing, and I think it’s somewhere between 12% and maybe as much as 20% – but I don’t think it’s less than 12%. And I would say a good example would be about 15% of that 56% jump that we saw. So it’s still roughly a 50% jump, but that last 10 or 15% was put in by government and does help the situation.

The other thing is, obviously as we go further, we will see the UIF benefits decline, we will see the Sassa extra grants end in October. I think by November we’ll probably get a clearer picture – or maybe only in January next year – of the impact without the government’s funding. By then the economy should be a few more steps up.

NOMPU SIZIBA: Yes. But, based on what you say, given the decimation that’s occurred with some businesses and jobs of course, obviously it’s going to be very difficult for us to see the level of transactions that were happening pre-Covid to be reflected anytime soon.

MIKE SCHÜSSLER: Absolutely. I think the level of transactions would make it back in nominal terms, say, if inflation stays roughly between 3% and 4% next year, by around this time next year. But in real terms it’s probably going to take another year or two because there are sectors that are going to take longer to recover, and other sectors change. For example, many of us are now doing Zoom and Microsoft Teams meetings, and we are probably less likely to fly for a business meeting down to Cape Town. So you may still fly for the last meeting to sign on the dotted line, but all the other stuff you’ll deal with on the phone as you did before. But when you sit around the table, and you’re sitting with people in two different rooms, you can now do it very easily in a Zoom-biased meeting, for example.

So some things will change, and we will then spend our time and money differently, I’m quite sure. We’ll find other uses for those things. But that change does take a year or two.

NOMPU SIZIBA: The coronavirus infection statistics are looking increasingly good, in that they seem to be receding. And there seem to be hints here and there from government officials that lockdown Level 2 could be upon us quite soon. In your view, how quickly does this need to happen, and are there any sectors that you’d agree to say, you know what, it’s still too dangerous at this time to open now?

MIKE SCHÜSSLER: I would open the whole economy. I would ask people to social distance, and wear masks inside. I’m not a medical expert, but the only part I think is that big inside events have been proved to be super-spreaders. The disease spreads in households and it spreads during lockdowns all around the world. So the only thing that I can think is now justified is saying big events will still have to keep a measure of social distancing, measure of mask-wearing, and have limited amounts of people. I think the rest of the stuff – one can be very logical about them.

And yes, I want the older people, the frail people to still be protected. That’s where we want to have not just temperature measured, but we want to know exactly who visits – all those sort of things. I think it’s very, very important. That is, maybe protecting the fragile is more important than limiting the healthy.

NOMPU SIZIBA: Mike, Stats SA was supposed to release the second-quarter unemployment figures yesterday, but postponed that to the end of the month. What’s your expectation?

MIKE SCHÜSSLER: My expectation is pretty bad news. It will be in the second quarter and In the third quarter, because it won’t all happen in one quarter. We’ve spoken about that before.

But the other thing is I do understand that you are going to do a different thing, because now you’ve done a telephone interview. And let me just say, while virtually everyone in South Africa has a cellphone, it’s a different technique, first of all. Second of all, a lot of cellphones go back to the same person.  So the person selling you the cellphone, for example, the small business or informal trader there in the middle of Pretoria or somewhere, he has registered all your SIM cards in his name. So he’s going to get about four calls from Stats SA  because he sent out 20 000  – but you get the idea. And therefore they have to re-calibrate this and rethink how they do it. But it is a very, very important move forward because I think it will make life a lot easier for Stats SA, and the survey a lot cheaper, because they are also under enormous money pressure.

I can say I have respect for  Stats SA, what they achieve with the money that they get. They need bigger agencies. I might not always agree with them, but they are doing a very good job with limited money.

NOMPU SIZIBA: So, even if the whole economy is opened up next Monday, what does government need to do or put in place to create the necessary momentum to reverse the massive losses that we’ve incurred during this period?

MIKE SCHÜSSLER: Phew! I would say the first thing is government needs to make it clear that they want to be closer to business, they want to listen more. I think just that attitude change would do wonders.

The other thing is what is on a lot of people’s minds – and not just business minds and economic minds; it would create a massive momentum and motivation,  I think – people don’t trust government any more. So they need to bring some of the bigger “corruptees” into the courts. I think that’s the other thing. Rules and regulations we can get going. We’ve spent a lot; so we’ve got to be careful how we do that. We can’t spend forever at this rate – 58% of this year’s budget, other than interest itself, is being financed by debt. And that is not sustainable.

So I think people are going to listen very carefully to what Mr Mboweni has to say in October. I think it’s again going to be most important – and to see the more business-friendly part of government receiving more backup would also help a lot.

The other thing is we’re going to have to start talking about where government starts cutting, and where it makes sense to cut spending quite radically. You know, we may decide as a country we don’t need 21 universities, we only need 10. Those are the sort of discussions we should be having. You caught me a little bit flat, but that is what I think we should be doing.

NOMPU SIZIBA: Many thanks to Mike Schüssler, chief economist at Economists.co.za.

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Mike, are your projections/ expectations based on data and numbers taking into account De Reyter’s latest outlook yesterday (Wednesday) on loadshedding?
It’s now more entrenched than ever.

End of comments.

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