Economic activity moving largely sideways in SA

Economic activity is moving largely sideways in South Africa according to the latest Economic Transactions Index, mainly due to load shedding, the logistical challenges at South Africa’s ports and railways and renewed upward pressure on fuel prices.

The BankservAfrica Economic Transactions Index (BETI), which measures the monthly value of interbank electronic transactions processed by BankservAfrica, showed signs of a slight recovery in March after a disappointing February.

“The BETI reached an index level of 133.4, improving by 1.3% compared to a year earlier and 0.8% up from the previous month,” says Shergeran Naidoo, BankservAfrica’s head of stakeholder engagements.

The suspension of load shedding towards the end of March most likely had a positive impact on economic activity in the final week of the month, but the index was only 0.7% higher than the average measured in the last six months.

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Data confirms ‘more of the same’ for economic activity

Elize Kruger, an independent economist, says this confirms that economic activity has largely moved sideways in South Africa.

“Load shedding and the crippling logistical challenges at ports and railways, as well as renewed upward pressure on fuel prices, have added to the ‘more of the same’ narrative for the economy.”

She points out that the slow growth momentum continues to have a negative impact on unemployment and social-economic challenges.

“Additionally, an extra dose of uncertainty and volatility in an important election year have made the situation even more taxing.”

Consumer inflation is another contributing factor. Inflation ticked higher in January to 5.3% and to 5.6% in February, driven by higher fuel prices, the weak Rand exchange rate and a spike in medical aid premiums.

It is forecast to remain around the 5.5% level for the next four to six months, before subsiding to realise a forecast average of 5.3% in 2024, Kruger says.

“Given that the BETI is published in real terms [adjusted for inflation], the stickiness of prices affects the BETI deflator which stood at 5.1% in December but ticked higher to 5.4% in January and to 5.6% in February.” 

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PMI also slipped in March, showing less economic activity

Other indicators also slipped in March, Kruger points out. The S&P Global South Africa Purchasing Managers’ Index (PMI) declined to 48.4 in March, with firms facing a renewed decline in business conditions after stabilising in February.

New order volumes fell at the sharpest rate in over two years due to stronger price pressures and drought conditions lowering customer demand.

The Absa Purchasing Managers’ Index slipped to 49.2 in March as both business activity and new sales orders declined. Total vehicle sales were down by 11.7% compared to a year earlier, according to Naamsa, while the first quarter’s total new-vehicle sales are down by 5.3% compared to the first quarter of 2023.

Naamsa attributes this to the prolonged impact of the elevated cost of living, higher interest rates and dampened consumer and business confidence, combined with the country’s port challenges and persistent load shedding, Kruger says.

The standardised nominal value of transactions cleared through BankservAfrica in March 2024 increased to R1.305 trillion versus R1.250 trillion in February, while the number of transactions improved from 155.5 million to 156.1 million. According to Naidoo, the average value of transactions in March 2024 was 6.0% lower compared to a year earlier.

ALSO READ: Uptick in economic activity not a sign of better days ahead in 2024

Slight improvement forecast for second half of the year

Despite the distressing economic environment, a slight improvement is forecast for the second half of the year, Kruger says.

“Expectations of lower international interest rates later in the year could spur a better-performing rand exchange and further moderation in consumer inflation. We could see interest rates fall by 50-75 basis points by year-end.”

Additionally, assuming load shedding is less intense than in 2023, the real gross domestic product (GDP) growth is forecast at 1.1% for 2024 compared to 0.6% in 2023, signaling a somewhat better year for South Africa, she says.