Interest rate hike or no – South African consumers are in trouble
After showing some marginal growth in the second quarter of the year, the latest BankservAfrica Transactions Index for the third quarter reflected a drop of 0.7%, pointing to lower GDP for the period.
The group’s data showed that the value of economic transactions in the South African economy fell in Q3 23 on a seasonally adjusted basis, contrasting the 0.6% quarter-on-quarter growth in Q2.
The more positive second quarter was largely driven by electricity load shedding proving less severe than previously indicated because repairs and maintenance were reduced to the bare minimum over the winter months.
BankservAfrica said that the BETI signals a muted economic growth performance in Q3, weaker than Q2 and with a probability of a negative quarterly growth rate.
The first quarter of the year saw South Africa’s GDP expand by 0.4%, and by 0.6% in the second quarter. Overall, the South African economy is expected to grow only by around 0.5% y/y in 2023, on weakened factors of production, including port and rail constraints and loadshedding.
According to Investec chief economist Annabel Bishop, the contraction in BankservAfrica’s index indicated risks to GDP for Q3, while the lagged effects of the upwards interest rate cycle since November 2021, and over 2022 and 2023, are affecting consumer spending.
“CPI inflation proved substantially lower in Q3.23 than in Q2.23, dropping to 5.0% y/y, versus Q2.23’s 6.2% y/y, and likely the lowest quarter of this year, although the September reading did see a jump, to 5.4% y/y from August’s 4.8% y/y,” she said.
“Falling inflation allows real incomes to rise, and salary and wage increases likely ran closer to inflation in Q3.23, as opposed to below, as was the case earlier in the year, with Household Consumption Expenditure likely benefiting (in real terms).”
However, October is expected to see CPI inflation at a similar pace to September, the economist warned, but this should be followed by some easing in November and December. While a further interest rate hike is not expected in November, she said the MPC voting to push the rate higher remains a risk.
“We continue to expect that SA’s interest rates will remain on hold this year, and over H1.24, with the possibility of the first cut in SA in July, 2024, although the SARB may delay the cut on a slower than expected descent in SA’s inflation rate,” Bishop said.
“Indeed, with the US having hiked interest rates by more than SA, and with the rand having weakened, partly as a consequence, the SARB could be slower in its interest rate cut cycle than the US, which would provide some support to the rand.”
Regardless of another rate hike or note, consumers are under pressure, the economist said.
BankservAfrica noted that there are bleak prospects for the economy’s growth in the third quarter, with incoming data from many different sources pointing to a weak year for 2023, while 2024 is expected to see a modest pickup, to around 1.0% GDP growth.
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