SA economy expected to grow at a faster pace

South Africa’s economy will likely grow at a faster pace in the second quarter than economists forecast, according to an index with a strong correlation to gross domestic product.

The BankservAfrica Economic Transactions Index, which tracks interbank payments, climbed 3.9% in the second quarter from the first three months of the year. That suggests “underlying momentum in the economy might have been stronger than generally perceived,” independent economist Elize Kruger said in an emailed statement. A median estimate of 23 economists in a Bloomberg survey projects an expansion of 1.2%.

Better-than-expected economic growth would boost tax revenue, helping rein in government debt and narrow the budget deficit at a faster rate. Debt is set to peak at 75.1% of gross domestic product (GDP) in 2024-25 and then gradually decline, while the budget shortfall is forecast at 4.2% of GDP in 2024-25, according to Treasury estimates. Beating those projections would bolster the attractiveness of local assets to offshore investors.

On a monthly basis, the index fell for the first time this year to 136.7 in June from a revised 143 in May because of increased power cuts and a significant rise in fuel and food prices, and the general inflation rate, Kruger said.

Eskom, which generates almost all of the nation’s power, implemented Stage 6 outages – removing 6 000 megawatts from the grid - for the first time since 2019 last month and inflation breached the 6% ceiling of the central bank’s target range in May.

While continued power outages are likely to weigh on economic growth this quarter, the removal of all remaining Covid-19 regulations at the end of June may help counter that negative impact.

"A further recovery towards pre-Covid activity levels in some sectors where restrictions still applied -- will support general economic activity in the coming months," said Kruger. -Fin24