South Africa’s PayInc Economic Index rose 0.8% month on month in August, following a revised 0.6% increase in July, which is an encouraging improvement, even though the outlook appears more constrained due to fuel-price pressures and weak investment.
PayInc index rises in August
Shergeran Naidoo, Head of Stakeholder Engagement at PayInc said the index reached 103.8 in August, 2.7% higher than a year earlier. July’s increase was revised from 0.3% to 0.6%, which the company attributed to better-than-expected consumer and producer inflation data.
Some relief from fuel prices in July and part of August also supported activity, PayInc said.
“The improvement in July and August is encouraging and suggests the economy could return to growth in the third quarter, although probably at a moderate pace,” said Elize Kruger, an independent economist at PayInc.
“However, the economy is by no means out of the woods, with renewed fuel-price pressures and continued uncertainty posing downside risks.”
Weak second quarter weighs on outlook
The improvement followed a difficult second quarter, when South Africa’s GDP contracted by 0.2% quarter on quarter. Stats SA said mining, manufacturing and trade were among the main contributors to the decline. Trade, catering and accommodation contracted by 1.9%, while gross fixed capital formation fell for a second consecutive quarter.
Higher fuel prices and inflation have weighed on household purchasing power and confidence, contributing to weaker consumer spending, PayInc said.
Renewed tensions in the Middle East have pushed international oil prices to around $107 (R1740) a barrel, raising the prospect of higher domestic fuel prices in October. Investment also remains under pressure, PayInc said.
“Uncertainty tends to make businesses more cautious about investment, expenditure and expanding their workforces,” Kruger said.
Kruger added that with growth subdued and inflation elevated, the South African Reserve Bank’s Monetary Policy Committee faces a difficult interest rate decision next week.
Other indicators presented a mixed picture in August, according to Shergeran Naidoo, PayInc’s head of stakeholder engagement.
The S&P Global South Africa Purchasing Managers’ Index edged up to 50.5 from 50.3 in July, while Naamsa reported that vehicle sales increased by 11.4% year on year to 57,733 units.
In contrast, the Absa Purchasing Managers’ Index declined for a fourth consecutive month to 45.8, reflecting continued pressure on the manufacturing sector. PayInc attributed the pressure to Middle East tensions, elevated oil prices, weak export demand and continued inventory reductions.
After reaching record transaction levels in July, volumes processed through PayInc moderated to 196.3 million in August from 201.5 million in July. Volumes were nevertheless 10.4% higher than a year earlier.
PayInc said that the nominal value of electronic transactions fell to R1.426 trillion in August from R1.521 trillion in July.
“PayShap continued to grow and accounted for 36% of total transaction volumes in August, The supply of cash to banks, which is included in the PayInc Economic Index, also moderated during the month,” noted PayInc.
Economists remain cautious
Waldo Krugell, an economist at North-West University Business School, said the figures were positive but cautioned that the index did not directly measure economic activity.
“It shows what a slight easing of the inflation rate can do for spending,” he said.
Johann Els, chief economist at PSG Financial Services, said second-quarter GDP growth of -0.2% was at the lower end of his expectations.
“Looking ahead, the third quarter is likely to remain under pressure, given likely still-soft manufacturing and mining data,” Els said.
“Lower imports, especially oil, and continued inventory rebuilding should provide some support. Even a decent rebound in the third and fourth quarters will probably only get us to around 1.1% growth this year.”
yogashen.pillay@nationalmg.co.za