South Africa’s economy is showing signs of entering a technical recession, as interbank payment data reveals a second consecutive quarterly contraction. The BankservAfrica Economic Transactions Index (BETI), an early indicator of economic activity, declined by 1.7% in Q1 2023 compared to the previous quarter. This contradicts the median estimate from a Bloomberg survey of analysts, which predicted a modest 0.2% growth in quarterly gross domestic product (GDP).
Multiple factors are contributing to South Africa’s economic woes, including severe power cuts, a 50 basis-point interest rate hike last month, and persistently high inflation. According to independent economist Elize Kruger, these issues are “holding the economy at ransom.” Additionally, the nation’s deteriorating logistics infrastructure is further stifling economic activity.
As the BETI suggests a negative quarter-on-quarter figure for Q1 2023, Kruger warns that South Africa could be on the brink of a technical recession. This follows a 1.3% GDP contraction in the final quarter of 2022. Kruger highlights the breadth of the economic weakness, stating that “most sectors [are] under severe pressure.”
South Africa’s manufacturing sector has experienced a 5.2% annual decline in production in February, marking the fourth consecutive month of decline and the steepest drop since April 2022. The purchasing managers’ index (PMI), compiled by S&P Global to measure private sector performance, fell to 49.7 last month, indicating a contraction.
Entering a recession could significantly impact South Africa’s efforts to address the 32.7% unemployment rate, manage national debt, and narrow the budget deficit more quickly. Treasury estimates suggest a decline in the consolidated budget shortfall to 3.2% by 2025-26, down from 4.2% in the fiscal year ending March 2023.
Despite recent actions and project announcements in the energy and transport sectors, Kruger cautions South Africans to brace for “more of the same” for a longer period than initially expected. The nation’s struggle to recover from the current economic challenges underscores the urgent need for effective solutions and policy interventions to overcome these obstacles and restore growth.
Table 1: Key Economic Indicators in South Africa
|BankservAfrica Economic Transactions Index (BETI)
|Q1 2023 compared to previous quarter
|Early indicator of economic activity
|Gross Domestic Product (GDP)
|Q1 2023 (predicted)
|Median estimate from Bloomberg survey
|Interest Rate Hike
|50 basis points
|Consolidated Budget Shortfall
|Fiscal year through March 2023
|Forecasted Budget Shortfall
|Annual Manufacturing Production Decline
|Fourth consecutive month of decline
|Purchasing Managers’ Index (PMI)
|S&P Global; below 50 signals contraction
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