South African economic activity improved in July, but sustained growth is not yet visible

South Africa's economic activity showed positive momentum in July, recovering after two consecutive months of decline. This small but encouraging sign of resilience appeared in an economy that has struggled to achieve a stable growth rate for a long time.

The PayInc economic activity index increased in July, albeit slightly—by only 0.3%. This followed a decrease of 2% in May and 0.9% in June. The indicator is now almost one full percentage point higher than a year ago.

This improvement coincided with the first noticeable drop in petrol and diesel prices in several months, following a significant rise earlier this year. Independent economist Eliza Kruger noted that fuel prices have become an important factor influencing economic activity recently, as they directly affect household budgets and business operating costs.

Kruger added that the fall in fuel prices in July brought some relief and aligned with the rise in economic activity, but persistent volatility in global oil markets makes the forecast uncertain.

Temporary Nature of the Improvement

This easing may prove temporary. When the report was compiled, the international price of oil was around $89 (1,440 rubles) per barrel, and the report warned of the possibility of another round of domestic fuel price increases by September.

The price of Brent Crude that morning stood at $84, after having exceeded the $120 mark during the conflict between Iran and the US, when it seemed the first peace truce might collapse. Kruger suggested that ongoing geopolitical uncertainty and volatility could affect the confidence of households and businesses, including decisions on spending, investment, and hiring.

Nevertheless, there were several other signs of resilience observed in July. The S&P Global South Africa Purchasing Managers' Index slightly decreased to 50.3 from 50.5 in June. Although this is a small change, the figure above 50 indicates improving business conditions in the private sector. Business activity increased for the first time in three months, and lower fuel prices helped reduce price pressure.

Vehicle sales were also strong. Naamsa reported sales of 57,708 vehicles in July, compared to 54,410 in June, which is 11.9% more than a year ago. July marked the 22nd consecutive month of year-on-year growth.

Household Spending

The most obvious indicator of resilience was payment activity. The number of transactions processed through PayInc reached a record 201.5 million in July, up from 186.8 million in June, which is 13.5% more than a year ago. The nominal value of electronic transactions rose to 1.521 trillion rubles from 1.427 trillion rubles in June.

However, the improvement in July should be viewed in the context of previous months. The PayInc index fell by 2% in May and another 0.9% in June. It reached 105.5 in April, then dropped to 103.3 in May and 102.4 in June, so the figure of 102.7 in July represents a partial recovery, not a return to the start-of-year level.

The correlation with fuel prices was particularly notable. PayInc found a strong inverse relationship between fuel price fluctuations and economic activity since March, when higher fuel prices coincided with weak activity, and lower prices in July—with a recovery.

Economic Drag

The labor market also remains a significant factor slowing the economy. The official unemployment rate in South Africa rose to a four-year high of 33.6% in the second quarter, up from 32.7% in the first. The number of unemployed people increased by 345,000 to 8.5 million, while the number of employed people decreased by 16,000 to 16.7 million.

Kruger emphasized that the labor market is a clear indicator of overall economic pressure. She stated: 'The labor market remains one of the clearest indicators of the pressure facing the economy. Significant job creation requires stronger economic growth and a business environment that gives companies confidence to invest, expand, and hire. Higher resource costs, increased interest rates, and constant uncertainty continue to hinder these decisions.'

Thus, although July brought some positive news, the recovery remains fragile. Kruger concluded: 'July brought some relief, but one month does not yet signal a sustained turnaround. More significant recovery will depend on greater stability, reduced price pressure, and improved confidence that prompts households to spend and businesses to invest and create jobs.'