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

The slight uptick in economic activity is welcomed but should not be considered a sign of anything better in 2024. Although the BankservAfrica Economic Transactions Index improved somewhat in December 2023 after two dismal months, driven by lower stages of load shedding and fuel price cuts, it is unlikely to signal the start of a significant economic turnaround in 2024. 

“The monthly BankservAfrica Economic Transactions Index (BETI) increased by 1.9% to reach an index level of 133.0 in December but compared to a year ago, the BETI was only 0.6% above the recorded level,” Shergeran Naidoo, BankservAfrica’s head of stakeholder engagements, says.

“During the first half of 2023, economic activity surprised to the upside but disappointed in the final months when these gains reversed. Many headwinds plagued the economy during the year, not least the record levels of load shedding, elevated interest rates, a lacklustre job market and low confidence levels among households and businesses,” Elize Kruger, an independent economist, says.

“The economic narrative has remained largely underwhelming and despite several industries becoming more resilient dealing with load shedding and other challenges, the economy struggled to gain sustainable momentum.”

Kruger says given that the BETI is expressed in real terms, the renewed upward trend in inflation indicators in September and October had a negative impact on the BETI outcomes. However, the deflator used in the BETI started moderating again with the forecast at 5.4% in December compared to 5.6% in November and 6.3% in October.

“On the assumption of further moderation in food prices, lower global inflation, a stable or even stronger rand exchange rate and sideways movement in the average international oil price, headline inflation is forecast to average 5.2% in 2024 compared to an estimate of 6.0% for 2023.”

ALSO READ: Economic activity up in December but domestic demand remains weak – PMI

Other indicators also show muted economic activity

Other nowcast indicators remained mixed but generally signalled muted economic activity in December, Kruger points out. “The S&P Global South Africa Purchasing Managers’ Index fell from 50.0 in November to 49.0 in December, as companies cited the negative impact of the backlog at the country’s ports.”

The Absa Purchasing Managers’ Index increased to 50.9 in December, up from 48.2 in November and Kruger says the uptick was partly due to a further lengthening of supplier delivery times, which normally implies strong demand conditions and therefore contributes positively to the composite gauge.

“However, in December, as in November, the Durban port crisis was the main driver of the sharp decline in supplier performance, with firms seeing lead times lengthening considerably, leading to higher costs.”

Vehicle sales also declined for the fifth month in December and according to naamsa, 40 328 new vehicles were sold last month, a decline of 3.3% compared to the same month in 2022. Full-year vehicle sales for 2023 came in only 0.5% higher than in 2022, remaining below pre-Covid levels.

The standardised nominal value of transactions cleared through BankservAfrica in December 2023 increased to R1.392 trillion from R1.270 trillion in November, according to Naidoo. The number of transactions increased to an all-time high of 163.1 million compared to the November’s 158.5 million.

“As the economy gradually migrates towards low-value digital, instant payments, the average value of transactions measured in the BETI will continue to decline over time. The average value of transactions in December was 4.8% lower compared to a year earlier,” Naidoo says.

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

Signal that economy remains strained

Despite the recovery in the BETI for December, the index was 0.5% lower compared to September 2023, signalling that the economy remained strained in the fourth quarter, Kruger says.

“With a quarterly contraction in real gross domestic product (GDP) already recorded in the third quarter as anticipated in previous BETI reports, there is a slight possibility that the economy could have dipped into a technical recession in the fourth quarter.” 

She warns that a notable improvement in economic growth is unlikely in 2024, although some positive developments could lead to a welcome uptick.

“Specifically, the expectation of lower international interest rates could spur a better performance in the rand exchange rate, which will likely contribute to a moderation in consumer inflation.”

Subsequently, she says, at least 75 basis points in interest rate cuts could be expected during the year, while real GDP growth is forecast at 1.3% in 2024 compared to an estimate of 0.6% in 2023.

“However, an acceleration in structural reform remains critical to lift South Africa’s potential growth rate, as the current levels remain woefully inadequate to address South Africa’s socio-economic challenges.”