Another BETI downturn in October shows ongoing strain in local economy

Another BankservAfrica Economic Transactions Index (BETI) downturn in October shows the ongoing strain in the local economy. While the BETI already signalled the probability of an economic contraction in the third quarter, the first indications for the fourth quarter also do not look encouraging.

The BETI increased on an annual basis by only 1.0% in October 2022, compared to a revised increase of 1.5% in September. Although the monthly decline (-0.2%) in October was marginal, the BETI has now declined for five consecutive months, reflecting the troubling months in the broader economy.

“The monthly decline in the BETI reached the lowest index level this year of 130.7 in October 2022, which is vastly different to the 143.3 level reached in May,” says Shergeran Naidoo, BankservAfrica’s head of stakeholder engagements.

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Load shedding and Transnet strike

Independent economist Elize Kruger says a scenario of ongoing strain is playing out in the South African economy, with the only difference every month that the triggers change. “September experienced the worst-ever month of load shedding in South Africa’s history, while October was characterised by a crippling strike at the state-owned logistics enterprise, Transnet.”

Business Unity South Africa (BUSA) noted that the 12-day Transnet strike’s cumulative impact was a logistics cost of about R7 billion as goods to the value of R65.3 billion stood waiting. A significant portion of the losses will likely never be fully recovered.

“On top of the recent strike action and ongoing load shedding, the economy has also been buckling under the significant increase in the cost of living. All these factors resulted in depressed confidence levels among households and corporates, fuelling emigration and discouraging potential investments, while keeping a ceiling on growth and job creation in South Africa,” Kruger says.

The South African Reserve Bank subsequently increased interest rates by a cumulative 275 basis points since November 2021 to stem the tide of price increases, but this added further strain to consumers with debt. Many may be impacted further by the expected rate hike following the next Monetary Policy Committee (MPC) meeting at the end of November.

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Lack of momentum in economy

The lack of economic momentum reflected in the BETI has been mirrored in other local indicators in recent months. The Absa Purchasing Managers’ Index (PMI) dropped from 52.1 in August to 48.2 in September but recovered again to a 50-level in October. The energy-intensive manufacturing sector has been particularly hard hit by ongoing load shedding and is clearly unable to gain any meaningful momentum.

The S&P Global South Africa PMI, which reflects activity in the broader private sector, ticked up marginally to 49.5 in October from 49.2 in September but remains in contractionary territory. According to this report, business conditions in the South African private sector deteriorated for the second consecutive month in October, due to load shedding and sharp inflationary pressures affecting activity and demand. Vehicle sales also lost momentum in October.

Kruger says global headwinds are also impeding growth. The JP Morgan Composite PMI for October indicated that the downturn in global economic activity extended into its third successive month, with the service sector rejoining manufacturing in the contraction territory.

In addition, business optimism dipped to a 28-month low as new order intakes and international trade flows continued to dwindle from heightened economic, inflationary and political pressures.

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More transactions, but less value per transaction

Meanwhile the standardised nominal value of transactions cleared through BankservAfrica in October 2022 was R1.16 trillion, while the number of transactions increased marginally to 138 million from 136.2 million in September.

Although showing a marginal monthly growth of 1.3% in October, the number of transactions was still 9.5% higher than a year earlier, but as the number of transactions grows, the average value per transaction has been moderating in recent months.

“The South African economy remains woefully unable to gain synchronised momentum across all sectors in light of all the challenges and we will continue to experience a ‘more-of-the-same-muddle-along’ scenario,” Kruger says.

She points out that the economic reality for South Africans has been deteriorating and could result in labour protests and potential social unrest, which the country can ill afford. “Much needed infrastructure upgrades, including road, rail, power and water, as well as broader structural reforms are urgently needed to address the declining trajectory of the South African economy.”