SA’s third-quarter economic activity started off on strong footing showing that household demand as well as private-sector business conditions strengthened in July.
Absa’s economic activity tracker shows that spending data, which measures all the bank’s transactions using credit and debit cards, rose 4.3% month on month in July after rising 1.2% in June.
Absa is SA’s fourth-biggest lender by market value and “what happens here should be a strong indicator of what happens more broadly”, Absa senior economist Miyelani Maluleke told Business Day.
Consumer spending data is always critical to watch for the overall health of the economy because, viewed from the demand side, about two thirds of SA’s GDP is household consumption expenditure, and signals about consumer spending momentum are quite useful in understanding the strength of economic activity.
Absa’s economic activity tracker is an early indication of what high frequency data informs the market and is a good signifier of what to expect regarding economic growth.
“Demand held up well in July. We saw the value of increases in [credit and debit card] transactions and we also saw vehicle sales, as captured by Naamsa [National Association of Automobile Manufacturers of SA] rise. These two measures of spending, that are not related in any way, show us demand is strong.”
Naamsa reported that vehicle sales rose 6.1% month on month in July after a combined fall of 1.7% in May and June.
Data captured by the tracker also shows that visits to places of economic activity also remained strong and boded well for businesses that relied on patrons being physically there, with footfall to grocers and pharmacies going up 38.7%, compared with pre-pandemic levels.
Visits to supermarkets and transit stations were also strong, averaging 20.8% and 21.4% more at the end of July. The data also showed that private-sector business conditions improved in July.
Maluleke said even though the Absa manufacturing PMI fell sharply from 52.2 points in June to 47.6 in July, marking the first time it has printed below the neutral 50 point mark that separates expansion and deterioration, the S&P Global PMI for SA — which covers agricultural, mining, manufacturing, construction, wholesale, retail and services sectors — rose marginally further to a 14-month high of 52.7 points in July from 52.5 in June.
Any print above 50 signals private sector business conditions improved from the previous month.
“The S&P Global PMI for SA is a much more wider indication of what is happening in the whole private sector”... as it not only focuses on the manufacturing sector but the wider economy, Maluleke said.
He added that even though the high-frequency data signals for quarter three were mixed, they were generally positive.
However, Absa also warned that load-shedding remained a notable downside risk to GDP growth until at least end 2023.
After pausing for 11 days, Eskom implemented load-shedding from August 3-6, with varying intensity, mainly due to the shortage of generation capacity.
On August 7, the power utility reported that it could pause load-shedding as a result of improved generation capacity, low weekend electricity demand and recovery in emergency reserves.
One of the 920 megawatt (MW) units of the Koeberg nuclear power station was restored to service on August 7 but Eskom said it would take 10 days to reach full output.
Last week, the power utility reported that maintenance accounted for 4,479MW, or 10% of the total installed capacity of shortages while 12,951MW (28%) was out due to unplanned outages or breakdowns, implying an energy availability factor of just 62% of total installed capacity.
The country’s power outages have been highlighted as a strong reason for quarter two’s GDP contraction.
“We believe this recent reprieve from load-shedding will be short-lived, given the unreliability of Eskom’s coal generation fleet. The energy plan presented by the president should start to ease load-shedding in late 2023 or in 2024, if implemented in full,” Absa said.
“We forecast that GDP contracted 0.9% quarter on quarter in the second quarter of 2022. Meanwhile, our GDP tracker is currently pointing to a decline of 0.6%,” Maluleke said.
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