Economic activity improved in December driven by lower stages of load-shedding and fuel price cuts during the month but the uptick is unlikely to signal the start of a significant economic turnaround in 2024, a survey shows.
The BankservAfrica Economic Transactions Index (BETI) released in January increased 1.9% to reach an index level of 133 in December, higher than the revised 130.5 in November, but only 0.6% above the year-ago level.
December’s reading concluded a year with the average BETI 0.5% lower than in 2022.
The index is an early economic scorecard for SA in terms of growth trends. It correlates highly with the Reserve Bank’s coincident indicator, as well as with GDP figures, while appearing a quarter earlier.
It shows us the direction of the country’s growth trajectory, predicting quarterly GDP a strong three months in advance.
Independent economist Elize Kruger said many headwinds plagued the economy in 2023, “not least the record levels of load-shedding, elevated interest rates, a lacklustre job market and low confidence levels among households and businesses”.
Kruger said the economic narrative had remained underwhelming. “While we forecast that headline inflation will moderate to 5.2% in December compared to 5.5% in November and 5.9% in October, we still estimate that average headline inflation will be 6% for 2023,” Kruger said.
“However, 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, we forecast headline CPI [consumer price index] to average 5.2% in 2024,” Kruger said.
She estimates 2023 GDP growth of 0.6% in 2023 and 1.3% for 2024. “An acceleration in structural reform remains critical to lift SA’s potential growth rate, as the current levels remain woefully inadequate to address SA’s socioeconomic challenges,” she said.
The forecasts differ with those of PwC. In its economic outlook released on Monday, it estimates GDP at 0.5% in 2023 and 1% in 2024, while inflation for 2023 is estimated at 5.8%, 0.2 percentage points lower than Bankserv Africa. Both estimate inflation at 5.2% in 2024.
Chief economist Lullu Krugel said PwC expects economic activity in SA not only to be affected by load-shedding, unemployment and crime but “short-term crises” manifesting in five areas: “These are macroeconomic volatility, disrupted supply chains, scarcity in resources, challenges to accessing healthcare services as well as struggling public institutions.”
Risks of recessions in emerging markets such as SA are also on the table. “Many regions around the world will continue to be unstable and fragile in 2024 as the threat of unrest impacts daily lives. International alliances will continue to realign to reflect global power shifts,” Krugel said.
“Already reeling from the impact of pandemic-induced shutdowns and restarts, supply chains have experienced exogenous shocks from subsequent conflicts — both directly from a disruption of operations and indirectly from sanctions.”
Krugel said SA companies are especially under strain from macroeconomic volatility and related headwinds. “The challenging economic context is a significant constraint on business growth,” she said.
“Data from Stats SA shows that while total company income across industries increased 4.8% year on year in third quarter 2023 to R3.6-trillion, profits and dividends declined significantly, and this negative trend could continue in 2024.
“Net profit before taxation declined 17.8% year on year in the third quarter of 2023 to R253.5bn while dividends payable dropped 33.2% to R55.6bn,” Krugel said.
She added that the macroeconomic outlook is the most severe near-term risk for insurance companies in SA, ahead of climate change, cybercrime and regulatory change.
For insurers, a weak economic outlook hits on two fronts. The loss of business due to business closure and affordability challenges and increased cost of claims, she said.
Krugel said inflation is another “significant threat” to SA companies as resource scarcity pushes international production costs to record highs. “SA companies are regularly struggling with resource shortages and will likely continue to be challenged by this obstacle in 2024. Capacity underutilisation in the manufacturing sector due to a shortage of raw materials has been elevated over the past several years.”
She added that the share of manufacturing capacity observed as underutilised due to raw material shortages was most recently measured at 3.6% in August 2023, compared with a long-term average of 2.3% and a mean of 2.0% in the prepandemic period.
While the possibility that SA has dipped into a technical recession in the fourth quarter, a second consecutive negative quarterly growth rate to be recorded, following the mining numbers last week, Kruger said it had become clear in 2023 that between Eskom and Transnet’s operational troubles, the SA economy is held hostage in terms of growth.
“Despite the recovery in the BETI in December, the index is still 0.5% lower compared to September 2023, signalling that the economy remained strained in the fourth quarter,” Kruger said.
Correction: January 23 2024
The article has been corrected to show the revised headline inflation numbers and not inflation as measured by the BETI deflator.
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