Another drop in the BankservAfrica Economic Transactions Index (BETI) in October shows the ongoing strain on the local economy. While the BETI already signaled the likelihood of an economic contraction in the third quarter, the first signs for the fourth quarter do not look encouraging either.
BETI rose just 1.0% on an annual basis in October 2022, compared to a revised 1.5% increase in September. Although the monthly decline (-0.2%) was marginal in October, BETI has now declined for five consecutive months, reflecting the worrying months in the broader economy.
“The monthly decline in BETI hit the lowest index level this year in October 2022 at 130.7, which is a stark contrast to the 143.3 level reached in May,” said Shergeran Naidoo, Head of Stakeholder Engagements at BankservAfrica.
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Load shedding and transnet strike
Independent economist Elize Kruger says a sustained stress scenario is playing out in the South African economy, with the only difference being that the triggers change each month. “September saw the worst month of load shedding in South Africa’s history, while October was marked by a crippling strike at state-owned logistics company Transnet.”
Business Unity South Africa (BUSA) noted that the cumulative impact of the 12-day Transnet strike was logistics costs of about R7 billion as R65.3 billion worth of goods waited. A significant portion of the losses will likely never be fully recovered.
“In addition to the recent strikes and ongoing load shedding, the economy has also buckled amid sharp rises in the cost of living. All of these factors led to depressed levels of confidence among households and businesses, which encouraged emigration and discouraged potential investment, while growth and job creation in South Africa remained limited,” says Kruger.
The South African Reserve Bank responded by raising interest rates by a total of 275 basis points since November 2021 in a bid to stem the tide of price hikes, but that put additional strain on indebted consumers. Many could be further impacted by the expected rate hike after the next Monetary Policy Committee (MPC) meeting in late November.
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Lack of dynamism in the economy
The lack of economic dynamism reflected in the BETI has also been reflected in other local indicators in recent months. The Absa Purchasing Managers’ Index (PMI) fell to 48.2 in September from 52.1 in August but recovered to a level of 50 in October develop dynamics.
The S&P Global South Africa PMI, which tracks activity in the broader private sector, edged up to 49.5 in October from 49.2 in September but remains in bearish territory. According to the report, business conditions in South Africa’s private sector deteriorated for the second straight month in October due to load shedding and strong inflationary pressures affecting activity and demand. Vehicle sales also lost momentum in October.
Kruger says global headwinds are also holding back growth. The JP Morgan Composite PMI for October suggested that the slowdown in global economic activity extended for a third straight month, with the services sector joining manufacturing in the contraction zone.
In addition, business sentiment fell to a 28-month low as new orders and international trade flows continued to slow due to heightened economic, inflationary and political pressures.
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More transactions, but less value per transaction
Meanwhile, the standardized notional value of transactions settled through BankservAfrica was R1.16 trillion in October 2022, while the number of transactions rose marginally to 138 million from 136.2 million in September.
Although October saw marginal monthly growth of 1.3%, the number of transactions was still 9.5% higher year-on-year, but as the number of transactions increases, the average value per transaction has increased over the past few months reduced.
“Unfortunately, given all the challenges, the South African economy still fails to achieve synchronized momentum across all sectors and we will continue to see a ‘more-of-the-same-muddling-through’ scenario,” says Kruger .
She points out that the economic reality for South Africans has deteriorated and could lead to labor protests and potential social unrest that the country can hardly afford. “Much-needed infrastructure improvements, including road, rail, electricity and water services, as well as broader structural reforms are urgently needed to cope with the declining South African economy.”