South Africa is going nowhere, fast
The economic narrative surrounding South Africa remains unchanged, with the country not seeing any meaningful structural changes to drive growth and pull the economy out of its rut.
The BankservAfrica Economic Transactions Index (BETI) for February 2024 is at the same level as a year ago.
“The BETI index level in February was 132.2, 0.8% down from January and a 1.2% improvement on the quarter ending November 2023,” said Shergeran Naidoo, BankservAfrica’s Head of Stakeholder Engagements.
The latest figures highlight the many challenges facing the country, including near-constant load shedding, devastating logistical challenges at local ports and rising fuel prices.
The stagnation is also reflected in the GDP numbers, where the country just scraped by with 0.1% growth in the fourth quarter of 2023 – narrowly escaping a technical recession – and managed to show 0.6% growth for the full year.
Expectations for growth in 2024 are just over 1%.
“This inability of the economy to break out of its current growth profile does not bode well for the country’s unemployment crisis and socio-economic challenges,” said Elize Kruger, Independent Economist.
In the recent 2024 Budget, Finance Minister Enoch Godongwana said that long-term growth requires improving capacity in energy, freight rails and ports.
Although the government’s economic growth strategy – which includes macroeconomic stability and improvements in state capability – sounds good on paper, and the greater public-private interaction has supported some sectors, the government still needs to act urgently to drive structural reform to get the economy out of stagnation.
Inflation indicators grew higher in January and are likely to recur in February due to higher fuel prices, the weak rand exchange rate levels and a spike in medical aid premiums.
The upward pressure on prices was also shown in the BETI deflator, which increased from 5.1% in December to 5.4% in January, weighing on the BETI.
“While inflation remains sticky above 5% in the early part of the year, headline CPI is still forecast to moderate towards year-end and average 5.3% in 2024 compared to 6.0% in 2023,” said Kruger.
Lower average inflation in 2024 is expected to reduce the erosion in purchasing power somewhat.
Mixed bag
Despite the drop in the BETI, other nowcast indicators performed slightly better over the month.
The S&P Global South Africa Purchasing Managers’ Index (PMI) – which measures the operating environment of the private sector – rose to 50.8 in February, higher than the neutral 50.0 level for the first time since August 2023 – but still flat in the bigger picture.
The Absa PMI increased from 43.6 in January to 51.7 in February, showing a renewed expansion in the manufacturing sector.
Although the manufacturing sector performed at its strongest since early 2023, the demand for manufactured goods remains weak amid several supply-side constraints.
Total vehicle sales also disappointed, with Naamsa seeing a 0.9% y-o-y decrease in car sales.
Year-to-date sales also dropped by 1.7%, which Naamsa attributed to the cost-of-living crisis, elevated interest rates and dampened consumer and business confidence.
Business confidence is also stuck in neutral, with the RMB/BER Business Confidence Index sinking by one point in the latest quarterly review.
“While we are still firmly in the ‘more-of-the-same’ mode, a slight improvement is forecast towards the second half of the year,” said Kruger.
Lower international interest rates in the latter half of the year could boost the rand, which would lead to moderation in consumer inflation and lead to the South African Reserve Bank cutting rates as well.
With the intensity of load shedding expected to be less than last year, real GDP growth is anticipated to grow from 0.6% in 2023 to 1.3% in 2024.
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