Economic activity, manufacturing output continue to decline

Economic activity and manufacturing output continue to decline, with the economic transactions index hitting its lowest level since December 2021 and manufacturing production falling by 1.3% in February compared to January.

According to the monthly BankservAfrica Economic Transactions Index (BETI), South Africa’s economic activity declined on a monthly and quarterly basis in March and reached its lowest point in almost two years.

“The BETI reached an index level of 130.2, the lowest since the 130.1 of December 2021, reflecting the growing weakness in the economy on a monthly basis. The index was 0.5% lower than in February,” says Shergeran Naidoo, BankservAfrica’s head of stakeholder engagements.

The further moderation in the BETI during March was not unexpected as the dismal economic environment prevails with ongoing rolling blackouts, another 50 basis points increase in interest rates and inflation remaining sticky, especially food price inflation.

Naidoo says early indications suggest economic growth stagnated in the first quarter, with the BETI signalling the strong possibility of a negative quarterly growth rate. The March BETI was 1.7% lower than in the quarter ending December 2022.

ALSO READ: Drop in economic transactions signals SA’s deteriorating economic activity

Weak economy becoming more broad-based

“It is becoming increasingly clear that the weakness in the economy has become quite broad-based, with most sectors under severe pressure,” says independent economist, Elize Kruger.

After moving sideways in December 2022 and January 2023, the Absa Purchasing Managers’ Index (PMI), plummeted to 48.8 index points in February and further to only 48.1 in March, the lowest since June 2021.

The S&P Global South Africa PMI also signalled dismal economic activity in the private sector, slipping below the 50.0 neutral mark and into contraction territory in March as the report noted that South African companies saw a reduction in new business in March, as client demand continued to weaken in the face of steep inflationary pressures and amid further disruption from the Eskom load shedding programme.

Kruger points out that even the resilient vehicle market faltered in March, with the motor industry selling 50 157 cars and commercial vehicles last month, 0.6% fewer than the 50 465 recorded in March 2022.

However, she says there was some positive global news.

“The J.P. Morgan Global Composite Output Index rose to 53.4 in March, remaining above the neutral 50.0 mark for the second successive month.”

The upturn still relied heavily on the service sector during March, which grew at its quickest pace since December 2021 with growth strengthening across the business, consumer and financial services categories.

Kruger says although still tentative, an improvement on the global front could have positive spin-offs for the South African economy.

ALSO READ: Another BETI downturn in October shows ongoing strain in local economy

More transactions, but of lower value

The standardised nominal value of transactions that cleared through BankservAfrica in March 2023 was R1.19 trillion compared to February’s R1.17 trillion, while the number of transactions increased notably from 133 million in February to an all-time high of 149 million in March 2023, a monthly increase of 12.1%, according to Naidoo.

Compared to a year earlier the number of transactions (total of debits and credits) increased by a notable 13.6% in March 2023. Naidoo says this appears to be due to the strong growth trend in the Real-Time Clearing (+15.1% m/m) and EFT credits excluding salaries (+17.4% m/m) electronic payment streams.

In both these categories, although the number of transactions increased notably, the average value of transactions declined and this confirms the growing trend in electronic payments as the economy migrates slowly to digital payments, Naidoo says.

“The ongoing moderation in the BETI, after only two months of marginal improvement in December 2022 and January 2023, confirms that the environment remains challenging and that the economy remains in a ‘muddle-along-little-thriving’ narrative.

“While actions were recently taken and projects have been announced in the energy and transport sectors of the economy, South Africans should prepare themselves for ‘more of the same’ for longer than hoped for,” Kruger says.

ALSO READ: Mining and manufacturing output higher in January but lower than a year ago

Manufacturing output also falling

Seasonally adjusted manufacturing production also declined by 1.3% in February compared to a 0.5% increase during January compared to December. Output was down 5.2% on an annual basis, compared to a 4.1% annual contraction in the previous month.

Economic research group, Oxford Economics Africa, says rolling blackouts escalated to stage 6 during February and placed undue pressure on South African manufacturers. The situation is unlikely to improve in the near term.

The largest negative contributors to the year-on-year decrease in manufacturing were in food and beverages (-6.1% and contributing -1.3 ppts), basic iron and steel, non-ferrous metal products, metal products and machinery (-5.3% and contributing -1.1 ppts) and petroleum, chemical products, rubber and plastic products (-4.7% and contributing -1.0 ppt).

Seasonally adjusted manufacturing production decreased by 1.0% in the three months ended February 2023 compared to the preceding three months and StatsSA noted that five of the ten manufacturing divisions reported negative growth rates over this period.

Oxford Economics Africa says there is no way of getting around the fact that South Africa’s manufacturing sector is taking serious strain.

“Incessant power outages are especially damaging to food producers, which will hold serious implications for food price inflation this year. After construction and mining, manufacturing is the third-worst performing sector in recent years, remaining 6.8% smaller than pre-pandemic levels.”