Another positive turn for South Africa

Confidence in South Africa is improving following the formation of the Government of National Unity (GNU), which should boost the country’s economic performance over the medium term.

The BankservAfrica Economic Transactions Index (BETI), measuring the value of all electronic transactions cleared through BankservAfrica at seasonally adjusted real prices, showed a welcomed improvement in July, reaching the highest level since May 2022.

“The July BETI of 136.7 was 0.5% higher than in June and signalled a continuation of the economic momentum observed in Q2 2024,” said Shergeran Naidoo, BankservAfrica’s Head of Stakeholder Engagements. 

Data from the previous BETI already showed that Q2 2024’s performance was likely better than that of Q1, meaning that economic growth is expected to be in positive territory in Q2, unlike the contraction in Q1.

Markets initially responded positively to the formation of the GNU, which led to favourable movements in the rand, bond yields, and credit default spreads.

After losing its majority in parliament for the first time in the democratic era, the ANC formed the GNU, which has been joined by the DA, IFP, PA, Rise Mzansi, Good, PAC, Al Jama-Ah, UDM and FF Plus.

Early signs show that the GNU will focus on accelerating structural reforms, boosting inclusive growth, and creating jobs, contributing to the upbeat outlook.

“This positive sentiment fuelled by the potential for a better outcome for South Africa in the medium term, in combination with the ongoing reprieve from load shedding, is already reflected in economic activity indicators such as the Absa PMI and vehicle sales during July,” said economist Elize Kruger.

“These are early indications of near-term economic recovery and confirm the trend evident in the BETI.”

The end of the wait-and-see approach following the certainty of the political front has seen new sales orders and the business activity sub-component of the PMI increase significantly.

Overall, the PMI recovered notability from a mediocre 45.7 in June to a positive 52.4 in July.

The post-election bounce also increased new vehicle sales in July, with data from Naamsa showing that 44,229 new cars and commercial vehicles were sold last month, 1.5% more than in July 2023.

This was a rare year-on-year improvement in new vehicle sales amid a challenging year.

Naamsa’s report showed that confidence in the country and overall sentiment are improving, leading to people gradually resuming car purchases.

That said, 15-year high interest rates and the unsustainably high cost of living continue to affect vehicle finance accessibility.

The S&P Global South Africa Purchasing Managers’ Index, which measures the private sector’s operating environment, also remained below the neutral 50 levels.

S&P Global highlighted ongoing challenges, including weaker sales and increased supply-side issues due to global transport issues and domestic port congestion.

“Following a weak month, the number of transactions cleared through BankservAfrica spiked to the second highest on record of 162.9 million in July compared to 147.4 million in June,” said Naidoo.

However, the standardized nominal value of transactions moderated from R1.290 trillion in June to R1.283 trillion in July.

Although the GNU is still new, the U-turn in confidence levels should not be underestimated.

“Confidence is an invisible economic factor with incredible power. It is often said that improving confidence is the cheapest way to stimulate the economy,” said Kruger

“A confident household will commit to expenditure, especially of durable nature. Corporates are more inclined to commit to capital expenditure projects in an environment of trust, confidence, and regulatory certainty.”

“While it will take time for the GNU to gain momentum, the additional skills, new plans, and greater oversight in Parliament could collectively bode well for South Africa’s medium-term growth prospects.”

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