Big turn for South Africa brings relief

 ·10 Jul 2024

The BankservAfrica Economic Transactions Index (BETI) moderated in June, but overall GDP growth is due to make a turn for the second quarter of the year, thanks to the extended suspension of load shedding and a boost in activity from the elections.

The BETI, which measures the value of all electronic interbank transactions processed by BankservAfrica at seasonally adjusted real prices, dropped slightly in June.

“The BETI reached an index level of 135.8, slightly down by 0.5% from the 136.4 recorded in May,” says Shergeran Naidoo, BankservAfrica’s Head of Stakeholder Engagements. 

That said, at this index level, the BETI is still 1.6% higher than in March, indicating that economic performance bettered the first quarter’s results and will lead to a positive outcome for Q2 2024.

“Since the end of March, South Africa has been free from load shedding, creating a more productive economic environment,” said Elize Kruger, Independent Economist.

“Additional activity relating to the National Elections in May has also stimulated economic activity in recent months.”

“But a likely reduction in temporary employment post-election, along with uncertainties around the election outcome and the establishment of a new political dispensation for South Africa, contributed to the slackness in economic activity during June,” said Kruger.

“Added to these are the ongoing stresses of the elevated interest rates and high cost of living impacting South Africans.”

South Africa’s GDP dropped by 0.1% in Q1 2024, following an expansion of 0.3% in Q4 2023.

Thus, the BETI indicates that the country should escape a technical recession (two consecutive quarters of retractions).

An analysis of the BETI’s performance around elections shows that economic activity tends to drop in the month after the election due, in part, to a reversal in temporary employment.

This was no different in June 2024, and the slack observed was not unexpected.

Other nowcast indicators also confirmed the slowdown in economic activity, and all other indicators mentioned the uncertainty caused by the election result (where the ANC’s vote dropped to 40%) and the formation of the Government of National Unity.

The S&P Global South Africa Purchasing Managers’ Index (PMI) dropped below the 50 neutral level again in June after only two months of growth. The report noted that clients were hesitant due to the election outcome’s uncertainty.

Absa’s PMI also remained below the 50 mark for the second straight month, as insufficient demand weighed heavily on the manufacturing sector’s performance during June.

According to Naamsa, new vehicle sales, including new cars and commercial vehicles, were down 14% from a year earlier.

“While lower in June – but higher than March’s index level of 133.6 – the BETI indeed signals an improved
economic outcome for Q2, a welcomed development following the dismal economic performance in the first quarter,” said Kruger.

“With the establishment of the new Government of National Unity, South Africa has moved to a ‘new normal’ that could awaken a more positive outcome in the medium term and foster much-needed confidence in the economy, unlike the ‘more of the same’ scenario that has played out over the past years.”

“This will hopefully change investors’ ‘wait-and-see’ views, especially for capital expenditure plans.”

“A renewed focus to up South Africa’s economic growth rate is needed to address the multiple challenges playing out in the economy, least of which are ballooning state debt and an unacceptably high unemployment rate.”

Although South Africa as a whole will likely miss a recession, the Eastern Cape has recently recorded a recession after 0.1% and 0.3% retractions in Q4 2023 and Q1 2024, respectively.

Read: The tiny municipality in South Africa that spends R23,000 on each resident

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