South Africa’s economy regained some momentum in July, with activity recovering after two consecutive months of decline and electronic transactions reaching a record.
But the improvement may prove difficult to sustain.
The PayInc Economic Index increased by 0.3% in July to 102.7, after falling 2% in May and 0.9% in June. It was 0.9% higher than a year earlier. PayInc describes the index as a measure of economic activity based on payment flows through the economy.
The July improvement coincided with lower fuel prices, which provided some relief to households and businesses after substantial increases earlier in the year.
“At 102.7, the index recovered some of the ground lost following declines of 0.9% in June and 2.0% in May,” said Shergeran Naidoo, head of Stakeholder Engagement at PayInc.
“The index remained 0.9% higher than a year earlier. While the broader environment remains difficult, the latest Index shows economic activity regained some momentum during the month.”
The clearest sign of resilience was the volume of transactions moving through the payments system.
PayInc processed 201.5 million transactions in July, up from 186.8 million in June and 13.5% higher than a year earlier. The nominal value of electronic transactions rose to R1.521 trillion from R1.427 trillion.
That suggests households and businesses remained active despite the difficult economic environment.
But it does not yet establish that South Africa has entered a sustained recovery.
The July boost came with an important caveat
Professor Simphiwe Madikizela, senior lecturer in Economics at UNISA’s School of Graduate Business and Leadership, said the improvement was encouraging but should not be overstated.
“I would caution against interpreting one month of stronger activity as evidence of a sustained economic recovery. What we are seeing is better described as a stabilisation or modest rebound from a very weak base, rather than a decisive turning point.”
Madikizela said the return to growth in the index and the record transaction volumes pointed to resilience in household and business activity.
“The fact that the index is still 0.9% higher than a year ago is also positive. More importantly, the record 201.5 million transactions processed in July point to a degree of resilience in household and business activity.”
That distinction between resilience and recovery is important.
South Africa can have consumers and companies continuing to transact without businesses necessarily becoming confident enough to make major investments, expand capacity or employ more people.
The latest labour-market figures demonstrate the problem.
Statistics South Africa reported this week that the official unemployment rate increased to 33.6% in the second quarter, from 32.7% in the first quarter. The number of unemployed people increased by 345,000 to 8.481 million, while employment declined by 16,000 to 16.7 million.
Formal-sector employment fell by 41,000 during the quarter, while the informal and agricultural sectors together added 34,000 jobs.
The contrast is significant: economic activity showed some improvement in July, while the labour market was moving in the opposite direction during the second quarter.
August has already changed the picture
There is another reason not to extrapolate July's improvement too far.
The fuel environment changed again in August.
From 5 August, petrol prices fell by 52 cents a litre. But diesel prices rose sharply by R1.3844 a litre for 0.05% sulphur diesel and R1.2344 for 0.005% sulphur diesel.
That matters because diesel is a significant operating cost for businesses involved in transport, logistics, agriculture, mining and other heavy commercial activity.
So while July benefitted from some fuel-price relief, the August picture is considerably more mixed.
Elize Kruger, independent economist, said fuel prices have become an important driver of economic activity because of their direct impact on household budgets and business operating costs.
“July’s lower fuel prices provided some welcome relief and coincided with an improvement in economic activity. However, continued volatility in international oil markets means that the outlook remains uncertain.”
She added: “Continued geopolitical uncertainty and volatility remain a risk to business and consumer confidence, with households and businesses likely to remain cautious about spending, investment, and hiring decisions.”
The real test is what businesses do next
The July numbers are therefore useful not because they prove the economy has turned a corner, but because they show that economic activity has not simply stalled.
The question now is whether that resilience is strong enough to become something more durable.
For businesses, that means watching whether stronger activity translates into increased orders, investment and expansion rather than simply more transactions.
For households, it means whether temporary relief from some costs is enough to support spending when employment remains under pressure.
And for the broader economy, it means whether companies regain enough confidence to invest and create capacity rather than simply operate cautiously within the capacity they already have.
UNISA economist Dr Eliphas Ndou warned that the improvement could prove temporary if geopolitical uncertainty continues to affect oil and fuel prices.
“As long as there is no long-lasting ceasefire in the Middle East, the improvement in the index will be transitory due to the adverse effects of heightened uncertainty in oil prices and fuel prices.”
“The heightened uncertainty leads to postponement of investment projects and reduced demand for labour, which weakens business and consumer confidence.”
That leaves South Africa with a more complicated picture than a simple rebound story.
July showed that economic activity can regain momentum. But August is already presenting a tougher cost environment, while the latest employment data shows that the improvement has yet to translate into a stronger labour market.
For now, the evidence points to stabilisation rather than a decisive recovery. The next few months will show whether July was the beginning of a more durable improvement or simply a brief recovery of ground lost earlier in the year.
yogashen.pillay@nationalmg.co.za
THE NATIONAL