SA economy grows better than expected in second quarter

The South African economy grew better than expected in the second quarter according to an encouraging uptick for the BankservAfrica Economic Transactions Index (BETI) in June after months of sideways movements, providing an encouraging outlook for the economy in the second quarter.

Although the BETI remained in negative territory on an annual basis, this was less so compared to the preceding months. The BETI declined by 2.0% in June 2023 compared to the 7.4% decline in May with the low base calculation adding to the annual improvement, Shergeran Naidoo, BankservAfrica’s head of stakeholder engagements, says.

“Although the index was choppy in recent months, moving mostly sideways in the past year, the recovery in June is encouraging and reflects the positive impact of a few specific factors in the economy in June,” Elize Kruger, an independent economist, says.

ALSO READ: All eyes on repo rate after surprising inflation decrease

The severity of load shedding subsided notably in June as Eskom shed 712 GWh, substantially lower than the 2042 GWh in May, which supported all sectors in the economy. Some sectors have also implemented alternative energy sources, becoming more resilient in the face of load shedding, she says.

Kruger points out that the moderation in consumer inflation also had a positive impact on the index’s performance in real terms, with consumer inflation moderating from 7.1% in March to 5.4% in June, a return to the South African Reserve Bank’s 3-6% target band for the first time since April 2022. 

“The moderation in consumer inflation will help to reduce the extent of erosion of household’s buying power that households had to deal with, especially in the past year.”

Not all optimism for economy

However, not all indicators reflect this optimism. The Absa Purchasing Managers’ Index (PMI) slipped to 47.6 in June compared to 49.2 index points in May, signalling stagnation in the manufacturing sector.

The S&P Global South Africa Purchasing Managers’ Index, a composite gauge of operating conditions in the private sector, edged up to 48.7 in June from 47.9 in May, although it was still in contracting territory as firms highlighted that the reduced load shedding helped them to increase working hours and complete outstanding orders.

ALSO READ: Economic activity in SA is stagnating

Like the BETI’s findings, domestic new vehicle sales exceeded expectations in June, despite the rising interest rates, unemployment and higher price challenges.

Naidoo says the standardised nominal value of transactions cleared through BankservAfrica in June 2023 was R1.21 trillion, compared to R1.18 trillion in May, while the number of transactions moderated somewhat from 147.2 million in May to 145.2 million in June 2023.

The BETI is signalling a positive growth rate for the second quarter with June BETI at 2.6% higher than in the quarter ending March 2023.

“With many economic challenges remaining and as the possibility of elevated load shedding levels for winter remains, the improvement in the BETI is not necessarily the start of a sustained synchronised economic recovery, but it indeed signals that the economy has probably fared better in the second quarter than initially expected,” Kruger says.