South Africa just muddling along

The BankservAfrica Economic Transactions Index (BETI) – a standardised value of all economic transactions in the South African economy – remained the same in January 2024, showing that the economy is in ‘muddle along’ mode.

“The BETI index for January remained unchanged at 133.3 and improved by only 0.4% on a year-on-year basis,” said Shergeran Naidoo, BankservAfrica’s Head of Stakeholder Engagements. 

Despite the reprieve in load shedding and a fuel price cut in January, the economy could not gain momentum during the first month of the year.

With load shedding hitting stage 6 this last week and an under-recovery in fuel prices, there could be further pain for the economy at the start of the year.

“Under the current conditions of elevated interest rates, high food price inflation, a lacklustre job market, low wage growth and slumped confidence levels, the economic narrative remains underwhelming,” said Elize Kruger, Independent Economist. 

Although inflation encouragingly moderated to 5.1% in December, some near-term upward pressures will lead to a short-term downward trend in the inflation indicators, such as the weaker rand exchange rate, surging fuel prices and notable medical aid premium increases.

That said, headline CPI is predicted to moderate towards year-end and average 5.3% in 2024 compared to 6.0% in 2023. This moderation will likely reduce purchasing power erosion over the year.

Other nowcast indicators also highlighted the stagnant nature of economic activity, such as the S&P Global South Africa Purchasing Managers’ Index (PMI) – an indicator of the operating environment for private businesses – increasing slightly from 49.0 in December to 49.2.

S&P Global said that businesses were hit by the Durban port crisis, which impacted delivery times and output capacity.

The Absa PMI also dropped to an index level of 43.6, last seen during the Covid-19 pandemic, highlighting that the manufacturing sector is still on the back foot.

Total vehicle sales also disappointed, with only 41,636 units sold in January – the sixth month of consecutive sales declines. Naamsa attributed this to the cost-of-living crisis, load shedding and the nation’s logistics challenges.

“While we started the year with a good dose of ‘more-of-the-same’, a slight improvement to this scenario is still forecast towards the second half of the year,” said Kruger. 

“Specifically, the expectation of lower international interest rates later in the year could spur a better performance in the rand exchange rate, which will likely further feed the moderation expected in consumer inflation and subsequent interest rate cuts could be on the cards.”

If the intensity of load shedding decreases compared to 2023, real GDP growth should accelerate from an estimated 0.6% in 2023 to 1.3% in 2024.

To get out of this low growth profile, there has to be a massive acceleration in structural reform, as current growth levels can not address South Africa’s socioeconomic challenges, such as the high unemployment rate.

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