February’s economic activity at same level as last year

South Africa’s economic activity was the same in February this year as in February 2023 after a slight monthly decline in BankservAfrica’s Economic Transactions Index, confirming the unchanged economic narrative in South Africa of low economic growth.

The BankservAfrica Economic Transactions Index (BETI) for February 2024 was 132.2, which is 0.8% down from January, but a 1.2% improvement on the quarter ending in November 2023, says Shergeran Naidoo, BankservAfrica’s head of stakeholder engagement.

Elize Kruger, an independent economist, says the latest BETI reflects the impact of the multiple economic challenges facing South Africa, such as constant load shedding, crippling logistics challenges at local ports and rising fuel prices.

“This inability of the economy to break out of its current growth profile does not bode well for the country’s unemployment crisis and socio-economic challenges.”

In the recent Budget Speech, the minister of finance said that “long‐term growth is highly dependent on improving capacity in energy, freight rail and ports and continuing to reduce structural barriers to economic activity”.

ALSO READ: ‘Low economic activity a bleak start to the year’

Growth plans look good on paper but economic growth keeps lagging

According to the Budget Review, “government’s economic growth strategy prioritises macroeconomic stability, structural reforms and improvements in state capability to raise growth rates in a sustainable manner”.

Kruger says while these plans sound good on paper and the involvement of the private sector has started to make a notable impact in some sectors, government must act urgently to drive the structural reforms needed to move the economy out of stagnation.

Inflation indicators ticked higher in January and are forecast to be repeated in February, driven by higher fuel prices, the weak rand exchange rate levels and a spike in medical aid premiums. The upward pressure on prices was also reflected in the BETI deflator, which increased to 5.4% in January compared to 5.1% in December, weighing on the BETI.

“While inflation remains sticky above 5% in the early part of the year, headline CPI is still forecast to moderate towards the end of the year and average 5.3% in 2024 compared to 6.0% in 2023,” Kruger says. Lower average inflation could reduce the erosion of purchasing power somewhat in 2024.

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

Other indicators remain close to recent lows

Other indicators performed slightly better in February but generally remain close to recent lows:

• The S&P Global South Africa Purchasing Managers’ Index (PMI®) increased to 50.8 in February, above the neutral 50.0 level for the first time since August 2023.
• The Absa Purchasing Managers’ Index (PMI) increased notably in February to 51.7, following an extraordinarily steep drop to 43.6 in January, marking a renewed expansion in the sector that performed at its strongest since early 2023, but at just above the 50-neutral mark suggests demand for manufactured goods remain weak amid numerous supply-side constraints.
• Total vehicle sales disappointed. Naamsa reported 44 749 new cars and commercial vehicles were sold in February, 0.9% fewer than in February 2023. Over the past year, 1.7% fewer vehicles were sold, which Naamsa attributes to the lingering effects of the cost-of-living increases, elevated interest rates and dampened consumer and business confidence, combined with the country’s port challenges and persistent load shedding. Passenger car sales dropped by 3.1% y/y in February.

ALSO READ: SA economic activity falls to same low level as a year ago – BETI

Value of transaction cleared

The standardised nominal value of transactions cleared through BankservAfrica in February 2024 increased to R1.250 trillion, above the R1.099 trillion recorded in January. The number of transactions also improved to 155.5 million compared to the previous month’s 152.1 million.

Naidoo says as the economy gradually migrates towards digital payments, the average value of transactions measured in the BETI continues to decline over time. The average value of transactions in February 2024 was 6.1% lower compared to a year earlier. The inclusion of PayShap data will, over time, contribute to the downward trend in average transaction values in the economy, he says.        

“While we are still firmly in the ‘more-of-the-same’ mode, a slight improvement is forecast towards the second half of the year,” says Kruger.

“Lower international interest rates in the latter part of the year could spur a better-performing rand exchange rate. This could contribute to an expected moderation in consumer inflation and lead to interest rate cuts later in the year. In addition, assuming that the intensity of load shedding is less than last year, real GDP growth is forecast at 1.3% in 2024 vs 0.6% in 2023.”