South Africa’s economy likely grew more than 2% in the first quarter, beating economists’ forecasts, an index with a strong correlation to GDP shows.
The BankservAfrica Economic Transactions Index, which measures EFT-originated transactions, increased by 2.4% in the first quarter. That suggests growth may have exceeded 2% in the three months to end-March, said Mike Schussler, chief economist at Economists.co.za, which helped develop the index. A median estimate of 23 economists in a Bloomberg survey was for expansion of 1.8%.
Better-than-expected economic growth would boost tax revenue, helping to rein in government debt and narrow the budget deficit at a faster rate. Debt is set to peak at 75% of GDP in 2024/2025 before falling back to about 70% by the end of the decade and the deficit is forecast at 4.2% of GDP in 2024/2025, according to national treasury estimates. Beating those estimates would bolster the attractiveness of local assets to offshore investors.
On a monthly basis, the index rose to a record 135.9 from a revised 134 in February, fuelled by a surge in metal commodity prices due to Russia’s invasion of Ukraine. South Africa is the world’s top producer of platinum and rhodium and second largest miner of palladium after Russia.
“The local economy has been given a boost by the high commodity prices and large-scale government spending, as some confidence seemingly returns for businesses and consumers,” said Schussler.
Still, while higher metal commodity prices have been a boon for first-quarter economic growth, the spike in fuel and food costs that are also being stoked by the war are likely to weigh on output in coming months., Schussler said. That’s as inflation breaches the upper band of the central bank’s 3-6% target, hurting consumers, he said. — Monique Vanek, (c) 2022 Bloomberg LP
