South Africa’s economy heading in the right direction

Several economic indicators suggest that South Africa’s economy is heading in the right direction.

The monthly BankservAfrica Economic Transactions Index (BETI), which measures the value of all electronic transactions cleared through BankservAfrica at seasonally adjusted real prices, declined in September to an index level of 136.1, 0.9% lower than August’s revised level of 137.3.

Despite the drop, the BETI is still up by 2% at this level compared to a year prior.

BankservAfrica said that the disappointing September outcome shows that economic recovery does not follow a linear path and that some volatility in monthly data is usually expected.

Compared to the turning point in November 2023, the BETI is up by 3.89%, showing that economic activity continues to unfold.

Although other economic indicators showed stronger performances in September, there has also been some volatility in recent months.

For instance, the seasonally adjusted Absa Purchasing Managers’ Index grew from 43.6 in August to a positive 52.8 in September.

The report noted that PMI and other manufacturing data have been volatile in recent months, but the average PMI for Q3 2024 was 49.6 points — below the neutral 50-point mark.

The S&P Global South Africa PMI – a composite gauge designed to give a single-figure snapshot of operating conditions in the private sector economy – also rose from 50.5 in August to 51.0 in September,
above the 50.0 neutral mark for the second consecutive month.

The reading was the joint highest in over two years, signalling a more decisive end to Q3 for the private sector economy. A sustained boost in new work supported the expansion of business activity since August 2023.

That said, Naamsa’s data showed that new vehicle sales are down by 4.1% year-on-year, compared to a contraction of 4.7% in August and growth of 1.7% in July.

Naamsa said that “despite the slower market, a slightly improved third-quarter performance provided hope that the tide for higher new-vehicle sales will turn and show some signs of recovery as we move closer to year-end.”

Although economic activity often changes, the underlying fundamentals are starting to turn positive for the South African economy.

Lower fuel prices, declining consumer price inflation, and the start of the interest rate cutting cycle, in combination with pent-up demand and real increases in salaries and wages, could prove to be essential tailwinds for the economy at the end of 2024.

Fuel prices have also declined noticeably over the last five months due to the rand’s appreciation and lower international product prices, which typically follow the trend in the international oil price.

Not only does a moderation in fuel costs filter into business and household budgets as an immediate tangible saving, but it also contributes to a notable moderation in consumer inflation.

Consumer inflation moderated from 5.9% in October 2023 to the latest reading of 4.4% in August 2024, with September’s forecast showing a further moderation of 3.8% – the lowest level since March 2021.

Headline CPI is also forecast to stay below 4% for six to nine months.

Thus, consumer inflation is forecast to average 4.5% in 2024 and even lower in 2025, which aligns with the mid-point of the SARB’s 3 to 6% target range.

The improving inflation outlook and mediocre economic growth should allow the SARB to lower interest rates further in the next few Monetary Policy Committee meetings, aiming to reach a repo rate of 7.0% by mid-2025 and cumulative relief of 125bps.

These factors should collectively push economic activity higher in the coming months.

Read: What you need to earn to be considered middle class in South Africa