Economic transactions value lower, still signals economic recovery

Although the value of economic transactions in South Africa was lower in September compared to August, it was still higher than a year ago, signalling economic recovery.

BankservAfrica’s Economic Transactions Index (BETI) which measures the value of all electronic transactions cleared through BankservAfrica at seasonally adjusted real prices, softened somewhat in September.

However, increasing optimism, along with the positive shift to lower fuel prices, an improved inflation outlook and interest cuts indicates the economy is heading for better months. The index also remains 2% higher compared to a year ago.

“On a monthly basis, the index was slightly lower by 0.9% at an index level of 136.1 in September compared to the revised level of 137.3 in August,” Shergeran Naidoo, BankservAfrica’s head of stakeholder engagements, says.

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Economist warns: no linear path for economic recovery

Elize Kruger, an independent economist, says the disappointing outcome of economic transactions for September is a stark reminder that economic recovery does not follow a linear path and some volatility in monthly data is expected.

Kruger points out that similar movements surfaced in other leading monthly economic indicators. The seasonally adjusted Absa Purchasing Managers’ Index (PMI) increased to 52.8 in September 2024, after readings of 43.6 in August, 52.4 in July and 45.7 in June.

While referencing the volatility in the PMI and official manufacturing data in recent months, the report stated that the September data takes the average for the PMI for the third quarter to 49.6 points, as a positive sign for the sector, at just below the 50-point mark.

In addition, the S&P Global South Africa Purchasing Managers’ Index (PMI®) increased from 50.5 in August to 51.0 in September, posting above the 50.0 neutral mark for the second consecutive month. Level with August 2023, the reading was the joint highest in just over two years, signalling a stronger end to the third quarter for the private sector economy, as a sustained boost in new work intakes supported the first expansion in business activity since August 2023.

New vehicle figures from the National Association of Automobile Manufacturers of South Africa (Naamsa) also revealed some slackness with sales falling by 4.1% compared to a year ago in September after a contraction of 4.7% in August and growth of 1.7% in July. Despite the slower market, it believes a slightly improved third quarter could lead to higher new vehicle sales in the coming months.

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Number of economic transactions dropped by 3.5%

After a spike in July and slight moderation in August, the number of transactions cleared through BankservAfrica in September dropped by 3.6% to 156.7 million compared to 162.6 million in August and 162.9 million in July. The standardised nominal value of transactions also declined to R1 303 trillion in September compared to R1 308 trillion in August.

However, Kruger points out that positive changes continue to emerge in the underlying fundamentals of the South African economy. “Fuel prices declined in the past five months, driven by the Rand’s appreciation and lower international product prices, which typically follow the trend in the international oil price.

“After five consecutive monthly declines, the petrol price reached its lowest level since February 2022, with cumulative cuts of R4.46 per litre. Similarly, the diesel price was cut for seven consecutive months, cumulatively by about R3.84 per litre.”

She says providing immediate tangible savings to business and household budgets, has also contributed to a notable moderation in consumer inflation.

Consumer inflation moderated from 5.9% in October 2023 to the latest reading of 4.4% in August 2024. The forecast for September is 3.8%, the lowest since March 2021. With headline CPI forecast to stay below 4% for the next six to nine months, consumer inflation is expected to average at 4.5% in 2024 and even somewhat lower in 2025, aligning with the mid-point of the South African Reserve Bank’s (Sarb) 3-6% target band, compared to 6.0% in 2023.

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Lower inflation and interest rates could increase economic activity

Kruger says the improved inflation outlook, amid mediocre economic growth, could see the Sarb lower interest rates further in the next few Monetary Policy Committee meetings, to reach a repo rate of 7.0% by mid-2025 and cumulative relief of 1.25%.

Collectively, these factors are expected to push economic activity higher in the coming months.

“Lower fuel prices, moderating consumer price inflation and the start of an interest rate cutting cycle, in combination with pent-up demand and real increases in salaries and wages, could prove to be important tailwinds for the economy in the latter part of 2024.”