South Africa is in stop-start mode

 ·17 Aug 2022

The BankservAfrica Economic Transactions Index (BETI) declined for the second consecutive month in July 2022, signalling further strain in the broader South African economy.

“On a monthly basis, the BETI declined by 1.3% in July compared to the revised drop of 4.7% in June,” said Shergeran Naidoo, BankservAfrica’s head of stakeholder engagements. “On an index level, the BETI moderated further in July to reach 134.5, falling from the all-time high of 143 in May and the lowest since February’s 133.8.”

On an annual basis, the BETI increased by 5.6% in July 2022 compared to 5% in June. However, this annual comparison is off the low base created by the riots in KwaZulu-Natal and Gauteng in July 2021, and under the Covid-19 restrictions. These contributed to lowering the BETI, which recovered again in August 2021.

“This moderation in the BETI is not unexpected in light of the many headwinds that have surfaced in the local economy over the past few months – from the recurring load shedding, which was intense in July, to the significant rise in fuel, food and general inflation increases,” said independent economist Elize Kruger.

“Although the index still suggests that the underlying momentum in the economy might have been stronger than generally perceived in Q2 2022, the moderation in July signals a weak start to the third quarter.” Other nowcasting indicators continue to present a mixed picture of the economy.

The Absa Purchasing Managers’ Index (PMI) plummeted to 47.6 in July, the lowest since July 2021, and notably lower than June’s 52.2 (a far cry from the 60.0 recorded in March). This dramatic decline suggests the manufacturing sector is proportionately harder hit by the headwinds compared to the broader economy, as reflected in the BETI and other indicators.

The S&P Global South Africa PMI, which reflects activity in the private sector, picked up for a third successive month in July, helped by improving new orders, output and employment numbers. All three metrics signalled the quickest rates of growth since mid-2021, amid reports of improving market demand despite rapid inflationary pressures.

Total new vehicle sales rose by a significant 31.8% year-on-year in July 2022, partly influenced by a low base, but also reflecting ongoing pent-up post-COVID demand. With the strong July outcome, year-to-date new vehicle sales are 13.9% higher than a year ago.

On the confidence side, the SA Chamber of Commerce and Industry’s (SACCI) Business Confidence Index (BCI) stood at 110.3 in July, 1.8 index points higher than in June and 6.1 points higher than in May. The improved sentiment is reportedly a result of increased merchandise export and import volumes and more new vehicles sold.

The business confidence index for June and July 2022 indicates that the negative medium-term (year-on-year) business sentiment of May 2022 was replaced by positive developments compared to the same period last year.

Meanwhile, the standardised nominal value of transactions cleared through BankservAfrica in July 2022 were recorded at R1.127 trillion, while the number of transactions increased to 130.4 million, 6.4% higher than a year ago.

“Many different and often conflicting signals from high-frequency indicators are typical of an economy in a ‘stop-start mode’, unable to gain synchronised momentum across sectors, as the next round of load shedding or some or other headwind is probably waiting around the next corner,” said Kruger.

In light of the severity of load shedding and its ongoing negative impact on the economy, the comprehensive interventions announced by president Ramaphosa on 25 July to address the country’s energy crisis could boost economic growth notably if implemented with the needed urgency, said the economist.

The notable moderation in international oil prices in recent weeks has resulted in sizeable fuel price declines seen in August. Further significant declines forecasted for September should trigger a much-needed moderation in inflation, she said.

Read: South Africa’s middle class is in big trouble

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