South Africa heading for a strong finish in 2024

South Africa’s economy is set to turn the corner soon, with inflation, interest rates, and fuel prices all heading in the right direction.

The BankservAfrica Economic Transactions Index (BETI), which measures the value of all electronic transactions cleared through BankservAfrica at seasonally adjusted real prices, showed a slight uptick in August 2024.

Increased confidence, fueled by interest rate cut expectations and improving consumer inflation, could boost economic activity, especially in the last few months of 2024.

“The BETI reached an index level of 137 in August compared to 136.9 in July and remained at its highest since March 2022,” said Shergeran Naidoo, BankservAfrica’s Head of Stakeholder Engagements.

The monthly change was also very modest, with it shifting sideways by 0.1%

“The BETI is essentially treading water but consolidating what seems to be a stronger performance in Q3,” said Elize Kruger, an Independent Economist.

Although the recent economic data have been slightly mixed and quite volatile, the underlying positive sentiment is seen in the economy and is starting to feature in confidence-related surveys.

For instance, the RMB/BER Business Confidence Index (BCI), the first business sentiment survey released following the formation of the Government of National Unity (GNU), rose by three index points to reach 38 in Q3 2024.

Despite respondents highlighting constraints, they were still generally upbeat over future business conditions.

In addition, for the first time since 2022, a slight net majority of respondents across different sectors expects business conditions to improve over the next quarter.

The FNB/BER Building Confidence Index also jumped from 35 in Q2 to 40 in Q3, highlighting cautious optimism.

Although the residential building sector continues to underperform, work for non-residential builders has shown a noticeable improvement, and activity at the start of the building pipeline was also encouraging.

“While still early days, improved confidence levels could translate into higher investment spending in the
economy, driving a much-needed better overall economic performance,” said Kruger.

After a spike in July, there was a slight moderation in the amount of transactions cleared via BankservAfrica.

“BankservAfrica processed 162.6 million transactions during August compared to 162.9 million in July. The standardised nominal value of transactions increased to R1,308 trillion in August 2024, higher than the R1,283 trillion in July,” said Naidoo.

In addition, fuel prices have also declined significantly over the last six months due to the rand’s appreciation and lower international produce prices. After four straight monthly drops, the petrol price has hit its lowest since February 2023, following cumulative cuts of R3.36/l.

A current over-recovery at the pumps suggests South Africa could see a R1 cut in petrol and diesel prices in October.

Reduced fuel costs filter into business and household budgets as they reflect immediate savings and contribute positively to a notable decline in consumer inflation.

Consumer inflation moderated from 5.9% in October 2023 to 4.6% in July 2024, and it is expected to drop further in 2024.

Consumer inflation is forecast to average 4.5%—in line with the South African Reserve Bank’s target—in 2023, a notable improvement from the 6.0% in 2023.

The improvement in inflation and the weak economic growth means that the SARB is widely expected to cut interest rates by 25 basis points when it meets next week.

The SARB is then anticipated to cut rates in subsequent meetings afterwards.

“Cumulatively, these developments are likely to boost household and business confidence levels further,
supporting economic growth in the second half of 2024 and into 2025,” said Kruger.

“Lower fuel prices, moderating consumer price inflation, and a first cut in interest rates, after an extended upward cycle that started in Q4 2021 and brought interest rates to a 15-year high, could prove to be important tailwinds for the economy in the latter part of 2024.”

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