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

South Africa’s economic activity has fallen to the same low level as a year ago after a surprise strong start to the year, the BankservAfrica Economic Transactions Index (BETI) has shown.

Economic activity is measured in the BETI, and the November index reading reflected another disappointing month – moderating to the same level as a year ago. 

“With an index level of 130.4 in November 2023, the BETI reached the exact same figure as in November last year and slipped from the revised 130.8 recorded in the previous month,” says Shergeran Naidoo, BankservAfrica’s head of stakeholder engagements.

“The underwhelming economic narrative was due to a record spate of load shedding, elevated interest rates, a lacklustre job market and low confidence levels. Despite the growing number of industries improving their resilience in recent months, the economy remains unable to gain sustainable momentum,” Elize Kruger, an independent economist, says.

The cumulative impact of the many challenges playing out in the economy over the past 18 months reached its peak as confidence levels remain under severe pressure and there is no clear end in sight for the ongoing challenges.

The renewed upward trend in inflation indicators in recent months had a negative impact on the BETI as it is expressed in real terms. The spike in consumer inflation, from 4.8% in August to 5.4% in September and further to 5.9% in October, was mostly driven by renewed pressure on the rand exchange rate with negative consequences for imported goods prices, higher food prices and notable fuel price hikes.

However, Kruger says, the international oil price subsided in recent weeks, which should result in a reversal of the bulk of recent fuel price hikes. Still, inflation remains somewhat above the mid-point of the South African Reserve Bank’s 3-6% target band and, therefore, interest rates are forecast to remain at elevated levels in the coming months.

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“There are already clear signs of stress among households resulting from weaker household finances, higher interest rates, fragile consumer confidence and cautiousness among lenders. Muted Black Friday sales are testament to these realities, while we expect the December holiday period to reflect a continuation of this trend,” Kruger says.

Other nowcast indicators confirmed the muted economic activity in November. The S&P Global South Africa Purchasing Managers’ Index (PMI®) rose to the neutral value of 50.0 in November, up from 48.9 in October.

However, this was partly due to a sharp lengthening of supplier delivery times, which normally implies strong demand conditions and contributes positively to the composite gauge.

In November the worsening logistics crisis at the Durban port was the main driver of the sharp decline in supplier performance, with firms seeing lead times lengthen considerably, Kruger says.

The Absa Purchasing Managers’ Index increased, somewhat, to an index level of 48.2 in November but remained below the 50-level for the 10th consecutive month, confirming ongoing strain in the manufacturing sector.

South African vehicle sales also declined for the fourth month in a row in November as the logistics crisis and escalated load shedding took its toll. According to the Automotive Business Council, naamsa, 49 986 new vehicles were sold in South Africa last month, a decline of 9.8% year-on-year.

“The BETI readings for the first two months of the fourth quarter indeed signal that the economic hardship continues. With a quarterly contraction in real gross domestic product (GDP) already recorded in the third quarter as anticipated in previous BETI reports, this will spur the possibility that the economy could have dipped into a technical recession in the fourth quarter,” Kruger says.

A recession occurs if a second consecutive negative quarterly growth rate is recorded.