No 2024 turnaround
SA ECONOMY: SLIGHT UPTICK POSSIBLE DUE TO POSITIVE DEVELOPMENTS
Real GDP growth forecast at 1.3% compared to estimate of 0.6% in 2023.
The slight uptick in economic activity should not be considered a sign of anything better in 2024. Although the BankservAfrica Economic Transactions Index improved somewhat in December 2023 after two dismal months, driven by less load shedding and fuel price cuts, it is unlikely to signal the start of a significant economic turnaround in 2024.
“The monthly BankservAfrica Economic Transactions Index (Beti) increased by 1.9% to reach an index level of 133.0 in December, but compared to a year ago, the Beti was only 0.6% above the recorded level,” Shergeran Naidoo, BankservAfrica head of stakeholder engagements, said.
The average Beti in 2023 was also 0.5% lower than the 2022 average. “During the first half of 2023, economic activity surprised to the upside but in the final months these gains reversed.
“Many headwinds plagued the economy during the year, not least the record levels of load shedding, elevated interest rates, a lacklustre job market and low confidence levels of households and businesses,” Elize Kruger, an independent economist, said.
“Despite several industries becoming more resilient in dealing with load shedding and other challenges, the economy struggled to gain momentum.”
The renewed upward trend in inflation indicators in September and October had a negative impact on the Beti outcomes. However, the deflator used in Beti started moderating again with the forecast at 5.4% in December compared to 5.6% in November and 6.3% in October.
“On the assumption of further moderation in food prices, lower global inflation, a stable or even stronger rand exchange rate and sideways movement in the average international oil price, headline inflation is forecast to average 5.2% in 2024 compared to an estimate of 6% for 2023.”
Other indicators generally signalled muted economic activity in December, Kruger pointed out.
“The S&P Global SA Purchasing Managers’ Index fell from 50.0 in November to 49.0 in December, as companies cited the negative impact of the backlog at ports.”
The Absa Purchasing Managers’ Index increased to 50.9 in December, up from 48.2 in November. The uptick was partly due to a lengthening of supplier delivery times, which normally implied strong demand conditions and contributes positively to the composite gauge.
“However, in December and November, the Durban port crisis was the main driver of the sharp decline in supplier performance, with firms seeing lead times lengthening considerably, leading to higher costs.”
Vehicle sales also declined for the fifth month in December. The National Association of Automobile Manufacturers of SA said 40 328 new vehicles were sold last month, a decline of 3.3% compared to the same month in 2022. Full-year 2023 vehicle sales came in 0.5% higher than in 2022. This was below pre-Covid levels.
The standardised nominal value of transactions cleared through BankservAfrica in December 2023 increased to R1.392 trillion from R1.270 trillion in November, according to Naidoo.
Despite the recovery in the Beti for December, the index was 0.5% lower than in September 2023, signalling that the economy remained strained in the fourth quarter, Kruger said.
She warned that a notable improvement in economic growth was unlikely in 2024, although some positive developments could lead to an uptick.
“Specifically, the expectation of lower international interest rates could spur a better performance in the rand exchange rate, which will likely contribute to a moderation in consumer inflation.”
At least 75 basis points in interest rate cuts could be expected this year, while real GDP growth is forecast at 1.3% in 2024 compared to an estimate of 0.6% in 2023.