South Africa’s Economic Recovery: Insights from Recent Transaction and PMI Data

Despite a recent drop in electronic transaction values for September, there’s a ray of hope for South Africa’s economy.

According to BankservAfrica’s Economic Transactions Index (BETI), while the value of these transactions dipped a bit compared to August, they still outshone the same period last year.

This hints at a slow yet encouraging economic recovery. In fact, the index—a key barometer for South Africa’s economic health—saw a modest monthly decline of 0.9%, but still managed a year-on-year boost of 2%.

In the bigger picture, this dip in transaction value is part of a broader shift, thanks to falling fuel prices, better inflation outlooks, and cuts in interest rates. These factors are fueling optimism, offering some breathing room for both businesses and consumers.

Signs of Promise in Manufacturing and Private Sectors

Now, September’s slight downturn wasn’t an isolated event.

The Absa Purchasing Managers’ Index (PMI), which keeps tabs on the manufacturing sector, showed some ups and downs but climbed to 52.8, crossing the neutral 50-point mark after a rough patch.

This suggests possible growth in manufacturing, largely because of increased new orders—a comforting sign as we approached the end of the third quarter.

Meanwhile, the S&P Global South Africa PMI threw some more good news our way, ticking up to 51.0 in September from 50.5 in August. It’s the second month in a row above neutral, echoing positive shifts in the private sector’s economic activity.

Challenges in Certain Industries

However, not all industries share the sunshine. For example:

• The automotive sector experienced a 4.1% drop in vehicle sales compared to last year.
• The National Association of Automobile Manufacturers of South Africa noted a similar contraction in previous months.

Still, analysts are hopeful that sales will rebound as the economic environment steadies.

Impact of Fuel Prices and Inflation

A big reason behind this optimism is the steady drop in fuel prices over recent months, which has saved both businesses and consumers a fair bit of cash. This has played a role in tempering consumer inflation.

The inflation rate, thankfully, is expected to stay in check, below the midpoint of the South African Reserve Bank’s 3-6% target range.

Looking Ahead

Looking ahead, if inflation keeps behaving and if the South African Reserve Bank slices interest rates further, we might see a spike in economic activity.

Expectations are buzzing for the repo rate to dip to 7% by mid-2025, coupled with pent-up consumer demand and real wage bumps, which could potentially spark economic growth as we head into late 2024.

Conclusion

In summary, while the South African economy has its hurdles to jump, the continuous improvements in core economic conditions give us reasons to be cautiously optimistic about the growth possibilities in the coming months.