More electronic transactions indicate improving economic activity

More electronic transactions conducted during October indicate improving economic activity after a setback during September, confirming that conditions improved since a year ago.

The BankservAfrica Economic Transactions Index (BETI), which measures the value of all electronic transactions cleared through its systems at seasonally adjusted real prices, showed a steady recovery in October.

The BETI increased in October to an index level of 136.5, which is 0.3% up on the 136.1 recorded in September and an improvement of 4.5% compared to November 2023.

After two months of lower volumes, the number of transactions cleared through BankservAfrica in October spiked to 167.8 million compared to 156.7 million in September, representing a 7.1% growth and an all-time high.

The standardised nominal value of transactions increased by 1% moderately to R1 317 trillion in October 2024 from R1 303 trillion in September.

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Higher economic transactions signal improving economic conditions

Shergeran Naidoo, head of stakeholder engagements at BankservAfrica, says the BETI signals that the underlying momentum in the economy is picking up, reflecting improved economic conditions.

Elize Kruger, an independent economist, says this is definitely a signal that the economic recovery continues to unfold.

“Improved confidence levels and more tangible shifts in the economic environment have led to activity gaining momentum compared to previous months.”

She points out that consumers are currently experiencing moderating consumer price inflation, slightly lower interest rates, and real increases in salaries and wages. Aall of which should contribute to an improvement in purchasing power in the fourth quarter of 2024.

“An additional tailwind is the potential that some of the proceeds from the two-pot retirement system withdrawals could boost retail spending.

“At the end of October, the South African Revenue Service (Sars) indicated that 1.7 million individuals applied for just short of R30 billion worth of withdrawals.

“These factors combined are likely to contribute to brisk retail spending during November, which also includes Black Friday.”

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Inflation and interest rates decreasing, leaving more money in consumers’ pockets

Consumer inflation moderated from 5.9% in October 2023 to 3.8% in September 2024 and the forecast for October is 3.0%, the lowest since February 2021.

Headline CPI is forecast to stay below 4% for the next six to nine months, suggesting a sustained period of low inflation on the assumption of relative Rand stability.

Therefore, Kruger says, consumer inflation is forecast to average at 4.5% in 2024 and 2025, aligning with the mid-point of the South African Reserve Bank’s (Sarb) 3-6% target band, opening more room for lower interest rates in the next few Monetary Policy Committee meetings.

“Provided no unexpected developments arise locally and abroad, the repo rate is forecast to reach a level of 7.0% by mid-2025 and reflect cumulative relief of 125 basis points in a fairly shallow cycle.

“The potential impact of Donald Trump’s recent victory in the US election is likely to be more of a medium-term factor and should not derail our near-term expectations for interest rate developments in South Africa.”

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Other economic indicators also show economic recovery

Kruger says other economic indicators confirm the unfolding economic recovery.

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) recorded 52.6 points in October, the second consecutive reading above 50, a first since the positive streak in late 2022 and early 2023, suggesting near-term upside for the manufacturing sector.

The S&P Global South Africa Purchasing Managers’ Index (PMI) also remained above the 50 ‘no-change’ mark for a third month in October, signalling a further strengthening of private sector performance.

“At 50.6, the index was down slightly from September’s 13-month high of 51.0 but still suggests that the private sector remained in growth mode at the start of the fourth quarter, with business activity levels increasing thanks to higher sales and more favourable economic conditions.”

Naamsa also reported a strong performance in October, with new passenger car sales powering ahead showing growth of 14.5%, reaching the best month since October 2019 compared to the 1.8% in September. The overall growth in new vehicle sales is also encouraging at 5.5%.

“Overall, these favourable conditions are expected to drive a strong year-end finish, particularly in retail spending, bringing a positive boost for the economy,” Kruger says.