May Brings Some Relief for the BankservAfrica Economic Transaction Index

The BankservAfrica Economic Transaction Index (BETI) tracked a monthly improvement in May 2020, suggesting the worst of the economic impact from the COVID-19 lockdown levels is over. However, the overall impact over the three months to May points to a long road to recovery for the South African economy.

“The monthly BETI showed less of a decline of -4.3% in May compared to April’s -14.2%. While this movement offers some relief, the data over the three months ending May 2020 reflects the biggest fall on our records with the actual total value of transactions in real terms lower than any period since April 2005,” says Shergeran Naidoo, Head of Stakeholder Engagement: BankservAfrica.

“The BETI, which comprises of the value and number of transactions, saw both declining substantially in May 2020. Our data shows the economy recorded 20% less in transaction value than a year ago and that the number of transactions fell by 9.1% year-on-year,” says Naidoo.

He adds: “The total value of transactions fell due to the average value per transaction falling faster than the number of transactions. This has to do with the economic conditions surrounding COVID-19.”

Over March to May 2020, economic activity crashed by 20.4%. “The size and speed of this collapse in just three months can be likened to falling off a cliff,” says Mike Schüssler, Chief Economist at economists.co.za.

The South African Reserve Bank data showed a 10.4% increase in deposits by South African residents in April over the last year as many took on a more conservative approach to their finances. This is the highest increase since the Great Recession of 2008/9 and ties in with the collapse of economic activity. With all the uncertainty, people and businesses have reduced their spending considerably with more opting to invest in their savings.

The storage data for April showed 13% less goods in warehouses – although some energy storage sites are stocked up on fuel products, such as petrol and jet fuel, that are not selling. It is expected that mining and wholesale will also be affected with knock-on effects on their supply chains. Limited purchases on higher-priced items, such as vehicles, and property sales have also dented transaction levels.

“One thing that is positive is that the BETI decline for May is far lower than that which was experienced in April and is a hopeful sign that the worst is over,” says Schüssler. But he adds that owing to the period of the COVID-19 lockdown, a better reflection of the economy lies in the difference between the quarter to May compared to the quarter to February.

The BETI is the widest and fastest actual real economy indicator. Based on smoothed and raw data of South Africa’s electronic payments interbank transactions routed through BankservAfrica, the BETI’s annual comparison has a very close relationship with the Gross Domestic Product of the South African economy. The size of the BETI decline in the first two months of Q2 2020 suggests the economy remains under severe pressure.

“We believe that a bounce back, particularly in the third quarter, is highly likely off these lows, but one would need to monitor the strength and sustainability very closely. We remain hopeful that while lockdown level 3 may have a positive impact in June, at least a double-digit decline in GDP for the second quarter can still be expected,” says Schüssler.

“We could also see the emergence of a new normal functioning economy post-COVID-19 where technology is vital in the day-to-day management of businesses. Various scenarios could play out such as office space being used less as many work from home.  There could be a stronger demand for services, such as elective medical procedures for treatments that were delayed during the crisis. Eating out or watching a sports game live could resume, albeit via potentially different channels and done differently to how it was done pre-COVID-19, as individuals return to their old ways of consuming, socialising and, ultimately, spending,” ends Naidoo.