September 16, 13:26IOL

South African economy shows signs of recovery amid rise in August PayInc index

Economic activity in South Africa showed growth in July and August. Early signs are emerging that economic growth may resume in the third quarter of 2026, as the latest data indicates an improvement in economic activity in August.

The PayInc Economic Index increased by 0.8% compared to the previous month in August, after growing by a seasonally adjusted 0.6% in July. This index, which tracks the real value of money flowing through the country's electronic payment system, was also 2.7% higher than a year ago.

This uptick in activity followed a challenging second quarter, when GDP contracted for the first time since the third quarter of 2024, primarily driven by mining, manufacturing, and trade.

Return to Growth on the Horizon?

Elize Kruger, an independent economist from PayInc, noted that 'the improvement in July and August is encouraging and suggests the economy could return to growth in the third quarter, albeit likely at a moderate pace.' However, she warned that 'the economy is far from safe, as rising fuel price pressures and persistent uncertainty create downside risks.'

According to PayInc data, higher fuel prices and inflation negatively impacted household purchasing power and confidence, contributing to a weakening of consumer spending. Furthermore, South Africans will face another sharp increase in fuel prices in October due to Middle East tensions, which have once again pushed oil prices above the $100 mark.

Kruger also added that investment remains under pressure, as gross fixed capital formation contracted for the second consecutive quarter. She explained that 'uncertainty tends to make businesses more cautious about investment, expenditure, and hiring.'

As economic growth is expected to remain moderate and inflation high, the South African Reserve Bank's Monetary Policy Committee faces a difficult decision on interest rates next week. Most analysts predict a 25 basis point rate hike.

Other economic indicators in August presented a mixed picture. The S&P Global South Africa Business Confidence Index slightly rose to 50.5 from 50.3 in July, while car sales increased by 11.4% year-on-year to 57,733 units, according to naamsa. Nevertheless, the Absa Business Confidence Index fell for the fourth consecutive month to 45.8, indicating continued pressure on the manufacturing sector amid Middle East tensions, high oil prices, weak export demand, and ongoing inventory drawdowns.

Payment activity also slowed after reaching record levels in July. The volume of transactions processed through PayInc decreased to 196.3 million in August from 201.5 million in July, although they remained 10.4% higher year-on-year, according to Naidoo. The nominal value of electronic transactions also decreased to 1.426 trillion rand from 1.521 trillion rand in July.

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iol.co.zaSeptember 8, 14:47

Experts analyze South Africa's GDP decline: slowdown or collapse of economic recovery?

South Africa's economic recovery was interrupted rather than completely derailed, as the economy unexpectedly contracted in the second quarter. The causes were a global energy shock, weak investment, and pressure on key sectors.

According to data from Statistics South Africa, published on Tuesday, the gross domestic product (GDP) decreased by 0.2% in the second quarter. This figure canceled out the 0.4% growth recorded in the first three months of the year, marking the first contraction since the third quarter of 2024.

Weakness was concentrated in three of the ten economic sectors, while the other seven demonstrated expansion during the quarter. The sharpest fall was recorded in the mining industry, which shrank by 3% due to reduced production of platinum group metals, manganese, gold, and iron ore. Manufacturing fell by 1.8%, with seven out of ten sub-sectors showing negative growth.

Trade, hospitality, and accommodation declined by 1.9%, reflecting weakened activity in wholesale and automotive trade, as well as in food and beverages.

Deep Impact

Despite the mining industry showing the largest percentage decline, the trade and manufacturing sectors had the greatest impact on GDP. Seven sectors nevertheless expanded, although overall growth was moderate. The strongest performers were the electricity, gas, and water sectors, as well as public services, which grew by 1%. Growth was also recorded in agriculture, construction, transport, finance, personal services, and household consumption.

Economist Lerato Ntuli of Anchor Capital noted that the result was weaker than consensus expectations, which had forecast growth at 0.1%. She added that the annual growth slowed to 0.9%, below the market expectation of 1.2%.

Ntuli linked this weakness to the conflict in the Middle East and the sharp rise in global oil prices, explaining the increased import bill due to higher fuel costs. She also predicts that price pressure will remain high in the third quarter due to crude oil price increases, despite consumer resilience.

Dr. Ntuli believes that this contraction does not rule out an interest rate hike. She stated that for the Monetary Policy Committee, the contraction is not grounds to forgo a hike on September 23rd. Anchor Capital expects a further increase of 25 basis points at the end of this month, as inflation risks remain upward-trending, even though the CPI fell to 4.3% in July from 5%, and inflation is projected by her to exceed 4% until early 2027.

Rate Hike?

Professor Raymond Parsons of the Northwestern University School of Business also pointed to the global energy shock and international pressure on growth and inflation. He noted that the recovery observed in the second half of last year failed to gain expected momentum, while finance, business services, and transport led in growth, and mining and manufacturing lagged.

However, Parsons views this contraction as a temporary setback, not the end of the recovery. He believes the economy is in a state of interrupted and postponed recovery, not a completely derailed one, with household spending appearing stable. Parsons now forecasts real GDP growth of about 1.2% this year, lower than the previously expected consensus of 1.6% for 2026.

Failure

Looking ahead, Investec Chief Economist Annabel Bishop highlighted El Niño as a potential constraint on next year's forecast. Although agriculture is expected to benefit from abundant harvests this year, Bishop warned that adverse weather conditions could negatively affect its results. She does not expect El Niño to have as strong an impact on inflation and growth as previous extreme droughts, but she predicts certain consequences for next year.

The contraction also fell at the lower end of the range predicted by PSG Senior Economist Johann Els before the GDP data was released. He expected the economy to either stagnate or contract by a maximum of 0.2%, calling the second-quarter data a 'mixed picture'. Before the release, Els stated that a result within his forecast would allow the economy to remain on a growth trajectory of around 1.4%–1.6% this year, compared to 1.1% in 2025.