Positive sentiment after election: A positive turn for economy?

Does the positive sentiment and improved confidence levels after the election hint at a positive turn for the economy? It certainly seems to be the case in the medium term coupled with the reprieve from load shedding.

According to the BankservAfrica Economic Transactions Index (BETI), which measures the value of all electronic transactions cleared through BankservAfrica at seasonally adjusted real prices, it reflects a welcomed improvement in July by reaching the highest level since May 2022.

“The July BETI of 136.7 was 0.5% higher than in June and signalled a continuation of the economic momentum observed in the second quarter of 2024,” Shergeran Naidoo, BankservAfrica’s head of stakeholder engagements, says.

“Data from the previous BETI already provided a strong indication that the second quarter’s performance probably surpassed the first quarter, while economic growth is expected to be in positive territory in the second quarter, unlike the contraction in the first quarter.”

Elize Kruger, an independent economist, says the unexpected election outcome resulting in the formation of a Government of National Unity (GNU) triggered an initial positive market response, as evidenced by the favourable movements in the Rand exchange rate, government bond yields and credit default spreads.

Early indications that the GNU will focus on accelerating structural reforms, boosting inclusive growth and job creation contributed to the upbeat outlook, she says.

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Positive sentiment already reflecting in economic indicators

“This positive sentiment, fuelled by the potential for a better outcome for South Africa in the medium term, in combination with the ongoing reprieve from load shedding, is already reflected in economic activity indicators such as the Absa PMI and vehicle sales during July.

“These are early indications of near-term economic recovery and confirm the trend evident in the BETI.”

The ‘wait and see’ approach ended with more certainty on the local political front as demonstrated when the new sales orders and business activity sub-components of the Absa PMI increased significantly.

Overall, the PMI recovered notably to 52.4 in July from a mediocre 45.7 in June, while a post-election bounce back in new vehicle sales was also realised in July, with data released by Naamsa showing 44 229 new cars and commercial vehicles were sold last month, 1.5% more than the 43 572 units recorded in July 2023.

Total new vehicle sales represented a rare year-on-year improvement in the consistently challenging year. The report noted that ‘confidence in the country and overall sentiment are improving, leading people to gradually resume car purchases. However, high interest rates and the unsustainably high cost of living continue to affect vehicle finance accessibility, Kruger says.

However, the S&P Global South Africa Purchasing Managers’ Index remained below the 50 neutral level again in July, moving sideways, with the report citing many ongoing challenges, including weaker sales and increased supply-side pressures due to global transport issues and domestic port congestion.

Naidoo says after a weak month, the number of transactions cleared through BankservAfrica spiked to the second highest on record of 162.9 million in July compared to 147.4 million in June. However, the standardised nominal value of transactions moderated to R1.283 trillion in July 2024 compared to R1.290 trillion in June.

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Early days, but do not underestimate U-turn in confidence levels in economy

While it is still early days, the U-turn on confidence levels should not be underestimated, Kruger says.

“Confidence is an invisible economic factor with incredible power. It is often said that improving confidence is the cheapest way to stimulate the economy. A confident household will commit to expenditure, especially of a durable nature. Corporates are more inclined to commit to capital expenditure projects in an environment of trust, confidence, and regulatory certainty.”

While it will take time for the GNU to gain momentum, the additional skills, new plans and greater oversight in Parliament could collectively bode well for South Africa’s medium-term growth prospects.