Low economic activity a bleak start to the year

Monthly economic activity measured in the BankservAfrica Economic Transactions Index (BETI) stayed the same in January 2024, confirming the economy remains in a ‘muddle-along’ mode.

Economic activity is not gaining momentum since January amid multiple ongoing challenges after it improved in December despite the reprieve provided by the lower stages of load shedding and fuel price cut.

Monthly economic activity measured in the BankservAfrica Economic Transactions Index (BETI) stayed the same in January 2024, confirming the economy remains in a ‘muddle-along’ mode.

“The BETI for January remained unchanged at 133.3 and improved by only 0.4% compared to a year ago,” Shergeran Naidoo, BankservAfrica’s head of stakeholder engagements, says.

“Under the current conditions of elevated interest rates, high food price inflation, a lacklustre job market, low wage growth and slumped confidence levels, the economic narrative remains underwhelming,” Elize Kruger, an independent economist, says.

“Inflation indicators surprised to the downside in December, she says and similarly, the deflator used in the BETI calculation also moderated to 5.1% in December compared to our forecast of 5.4%, resulting in a small upward revision to the December BETI (to 133.3 from originally published 133.0).”

Headline inflation moderated to 5.1% in December compared to 5.5% in November, while the total producer price index moderated to 4.0% compared to 4.6% in November.

Kruger says while the moderation in inflation has been encouraging, some near-term upward pressures resulting from the weaker rand exchange rate, surging fuel prices and notable medical aid premium increases will result in a short-term reversal of the downward trend in inflation indicators.

“Still, headline inflation is forecast to moderate towards year-end and to average 5.3% in 2024 compared to 6.0% in 2023. Moderately lower inflation is likely to reduce the erosion of purchasing power somewhat in 2024.”

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Other indicators confirm stagnant economic activity

Other indicators remained mixed but confirmed the stagnant nature of economic activity in January. The S&P Global South Africa Purchasing Managers’ Index (PMI®) increased marginally from 49.0 in December to 49.2 in January, with the report stating that South African businesses remained beset by demand and supply-side challenges at the beginning of the year, notably the Durban port crisis and its impact on delivery times and output capacity.

The Absa purchasing manager’s index (PMI) also dropped notably to an index level of 43.6, a low level last seen during the Covid-19 crisis and signalled that the manufacturing sector started the year on the backfoot, she says.

Total vehicle sales continue to disappoint, with only 41 636 units sold in January, a decrease of 3.8% compared to December 2022. It was the sixth consecutive month of declining sales, which Naamsa attributed to the lingering effects of cost-of-living increases and dampened consumer and business confidence, combined with the country’s port challenges and persistent load shedding.

The standardised nominal value of transactions cleared through BankservAfrica in January 2024 moderated to R1.099 trillion, compared to R1.392 trillion in December, while the number of transactions sagged to 152.1 million compared to 163.1 million in December.

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A slight improvement possible in second half of 2024

“As the economy gradually migrates towards digital payments, the average value of transactions measured in the BETI continues to decline over time. The average value of transactions in January 2024 was 7.4% lower compared to a year earlier. The inclusion of PayShap data will contribute towards the downward trend in average transaction values in the economy,” Kruger says.

“While we started the year with a good dose of more-of-the-same, a slight improvement to this scenario is still forecast towards the second half of the year. Specifically, the expectation of lower international interest rates later in the year could spur a better performance in the rand exchange rate, which will likely further feed the moderation expected in consumer inflation and subsequent interest rate cuts could be on the cards.”

Should the intensity of load shedding be less compared to 2023, real gross domestic product (GDP) growth is forecast at 1.3% in 2024 compared to an estimate of 0.6% in 2023.

However, Kruger points out, to break out of this low growth profile, an acceleration in structural reform remains critical for South Africa, as the current growth levels are inadequate to address South Africa’s socio-economic challenges, of which the high unemployment rate is the most critical.