The BankservAfrica Economic Transactions Index (BETI), which measures the value of all electronic transactions cleared through BankservAfrica at seasonally adjusted real prices, softened somewhat in September.
However, increasing optimism, along with the positive shifts towards lower fuel prices, an improved inflation outlook, and interest cuts, indicates the economy is heading for better months.
“On a monthly basis, the BETI lowered slightly by 0.9% to an index level of 136.1 in September compared to the revised level of 137.3 in August,” says Shergeran Naidoo, BankservAfrica’s head of stakeholder engagements.
On the upside, the BETI remains 2.0% higher compared to a year ago.
“The disappointing outcome for September is a stark reminder that economic recovery does not follow a linear path – some volatility in monthly data is expected,” says independent economist Elize Kruger.
Since the turning point in November 2023, the BETI has risen by 3,8%, signalling a gradual progression for economic activity.
Similar movements have surfaced in other leading monthly economic indicators. The seasonally adjusted Absa Purchasing Managers’ Index (PMI) increased to 52.8 in September 2024, following readings of 43.6 in August, 52.4 in July and 45.7 in June.
While referencing the volatility in the PMI and official manufacturing data in recent months, the report stated that the September data takes the average for the PMI for Q3 to 49.6 points, as a positive sign for the sector, at just below the 50-point mark.
The S&P Global South Africa Purchasing Managers’ Index (PMI) rose from 50.5 in August to 51.0 in September, posting above the 50.0 neutral mark for the second consecutive month. Level with August 2023, the reading was the joint highest in just over two years, signalling a stronger end to Q3 for the private sector economy, as a sustained boost in new work intakes supported the first expansion in business activity since August 2023.
New vehicle figures by Naamsa also revealed some slackness with sales falling by 4,1% y/y in September vs a contraction of 4,7% in August and growth of 1,7% in July. Despite the slower market, it believes a slightly improved third quarter could lead to higher new vehicle sales in the coming months.
Following a spike in July and slight moderation in August, the number of transactions cleared through BankservAfrica in September dropped by 3,6% to 156.7 million compared to 162,6-million versus 162,9-million in August and July, respectively, according to Naidoo. The standardised nominal value of transactions also declined to R1 303 trillion in September 2024 versus R1 308-trillion in August.
Positive changes continue to emerge in the underlying fundamentals of the South African economy.
Fuel prices have declined in the past five months, driven by the Rand’s appreciation and lower international product prices, which typically follow the trend in the international oil price. After five consecutive monthly declines, the petrol price has reached its lowest level since February 2022, with cumulative cuts of R4.46/l. Similarly, the diesel price has been cut for seven consecutive months, cumulatively by about R3.84/l.
Providing immediate tangible savings to business and household budgets, these have also contributed to a notable moderation in consumer inflation, according to Kruger.
Consumer inflation moderated from 5,9% in October 2023 to the latest reading of 4,4% in August 2024. The forecast for September is 3,8% y/y, the lowest since March 2021.
With headline CPI forecast to stay below 4% for the next 6-9 months, consumer inflation is expected to average at 4.5% in 2024 and even somewhat lower in 2025, aligning with the mid-point of the South African Reserve Bank’s (SARB) 3-6% target band, compared to 6% in 2023.
The improved inflation outlook, amid mediocre economic growth, could see the SARB lower interest rates further in the next few Monetary Policy Committee meetings, to reach a repo rate of 7% by mid-2025 and cumulative relief of 125bps.
Collectively, these factors are expected to push economic activity higher in the coming months.
“Lower fuel prices, moderating consumer price inflation and the start of an interest rate cutting cycle, in combination with pent-up demand and real increases in salaries and wages, could prove to be important tailwinds for the economy in the latter part of 2024,” says Kruger.