South Africa recession talk rears its ugly head –

Economic activity saw a slight uptick at the end of 2023, but there are warning signs that the country dipped into a technical recession.

The BankservAfrica Economic Transactions Index (BETI) improved slightly in December 2023 after two weak months, primarily driven by lower stages of load shedding and further fuel price cuts.

“The monthly BETI increased by 1.9% to reach an index level of 133.0 in December,” said Shergeran Naidoo, BankservAfrica’s Head of Stakeholder Engagements.

“On a year-on-year basis, the BETI was only 0.6% above the recorded level.”

The average BETI in 2023 was also down 0.5% compared to the 2022 average.

“During the first half of 2023, economic activity surprised to the upside – but disappointed in the final months when these gains reversed,” said Elize Kruger, Independent Economist.

“Many headwinds plagued the economy during the year, not least the record levels of load shedding, elevated interest rates, a lacklustre job market and low confidence levels among households and businesses.”

“The economic narrative has remained largely underwhelming, and despite several industries having become more resilient against load shedding and other challenges, the economy struggled to gain sustainable momentum.”

As the BETI is expressed in real terms, the renewed upward trend in inflation indicators in September and October hurt the BETI outcomes.

That said, the deflator used in the BETI started moderating, with the forecast declining from 5.6% in November to 5.4% in December.

With further food price moderation, lower global inflation, a stable or stronger rand and stable international oil prices, headline CPI in 2024 is forecasted to average 5.2% in 2024 (2023 estimate: 6.0%).

Other nowcast indicators also signalled muted economic activity in December, such as the S&P Global South Africa Purchasing Managers’ Index (PMI) falling from 50.0 in November to 49.0 in December amidst the nation’s port woes.

On the other hand, the Absa PMI increased from 48.2 in November to 50.9 in December. Still, the uptick was partly due to a further lengthening of supplier delivery times, which usually implies stronger demand and not delays from suppliers.

Vehicle sales also declined for the fifth month in December, whilst full-year vehicle sales in 2023 were only 0.5% higher than in 2022 and still below pre-Covid levels.

Recession warning

Although the BETI recovered slightly in December, Kruger said that the index was still 0.5% lower than September 2023, signalling that the economy was still strained in Q4.

“With a quarterly contraction in real GDP already recorded in Q3 – anticipated in previous BETI reports – there is a slight possibility that the economy could have dipped into a technical recession in Q4,” BankservAfrica said.

Despite a significant improvement in economic growth being unlikely in 2024, there are some positive developments that could lead to a welcomed uptick.

Lower international interest rates could result in a better performance in the rand exchange rate, which will likely help moderate inflation.

BankservAfrica added that 75 basis points in interest rate cuts are expected for this year.

In addition, real GDP growth is expected to rise from 0.6% in 2023 to 1.3% in 2024.

“However, an acceleration in structural reform remains critical to lift South Africa’s potential growth rate, as the current levels remain woefully inadequate to address South Africa’s socioeconomic challenges,” BankservAfrica said.

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