South Africa’s deficit on the current account of balance of payments – the broadest measure of trade in goods and services with the rest of the world – unexpectedly narrowed in Q1, providing the rand at the time with some much-needed support. 

Read more in Daily Maverick: SA current account, rallying rand, manufacturing data are rare gems of (relatively) good economic news

That positive trend reversed in Q2 when it widened to R160.7-billion from a revised R63.7-billion in Q1. The current account deficit as a ratio of gross domestic product (GDP) widened to 2.3% in Q2 from 0.9% in Q1, according to the South African Reserve Bank.

This was in line with a Bloomberg median forecast of economists which helps to explain why the rand took the data in its stride, making marginal gains to 19.16/dollar from 19.24/dollar just before it was released. 

South Africa’s trade surplus, meanwhile, narrowed from R110.6-billion in Q1 to R31.1-billion in Q2. 

“South Africa’s terms of trade (including gold) deteriorated in the second quarter of 2023 as the rand price of imported goods and services increased, while that of exports decreased,” the central bank also said. 

This points to cooling commodity prices as global economic growth – while not as fragile as previously expected – slows compared to last year and China’s recovery remains faltering.

This has been reflected in a sharp decline in earnings for most South African mining companies, notably in the platinum group metals (PGMs) sector. One consequence has been an evaporation of the revenue boost to the Treasury from mining taxes and royalties that had been a feature of the past couple of years when commodity prices were red hot. 

Amid this gloom, there has been a rebound – off extremely low levels – in business and consumer confidence. 

The FNB/BER Consumer Confidence Index (CCI) rose in Q3 to -16 index points from -25 in Q2. The best that can be said on this front is that it is at least moving in the right direction, but consumers hardly have the confidence to splurge. 

To put things in context, the previous reading in Q2 was the second-lowest on record since 1994. Consumer confidence was only lower in that timeframe in Q2 2020 when pandemic lockdown measures were at their harshest. 

“… the latest reading of -16 remains well below the long-run average CCI reading of zero since 1994, signalling a low willingness to spend among consumers,” FNB noted. 

That represents a deep pothole to climb out of, and the South African consumer is still reluctant to peer over its edge lest they get struck by the next shock to this battered economy.

The CCI also highlights the glaring gaps between the haves and the have-nots in an economy that is topping the global charts for unemployment and inequality.

“A more detailed breakdown of the CCI shows a remarkable rebound in the confidence levels of high-income households (earning more than R20,000 per month) following an outsized decline during the first half of 2023,” FNB said. 

“Spooked by a dramatic escalation in load shedding, a sharp depreciation in the rand exchange rate, successive interest rate hikes and the diplomatic fallout following the docking of a Russian ship in Simon’s Town, affluent consumers became particularly alarmed about South Africa’s economic prospects. 

“High-income confidence plunged to an all-time low of -40 in the second quarter of 2023, but rebounded to -17 in the third quarter.”

One way to read this trend is that it is the more highly educated – and hence more affluent – segments of the population who pay attention to things such as geopolitical events, and adjust their consumer and capital allocation patterns accordingly. It is also this population group that is typically emigrating and taking capital out of the country while reducing the tax base. 

But at least they have regained some lost confidence now that the spectre of the muddled Lady R saga does not loom so large over their investment portfolios. 

“Whereas high-income households were considerably more pessimistic than low- and middle-income households during the first half of 2023, the confidence levels of all three income groups are once again at similar (relatively depressed) levels,” FNB said. 

So “confidence” is currently the great leveller – all income groups in South Africa are at similar levels when it comes to consumption, whether it be for a new car or a bag of pap.

Data this week also showed that business confidence crept higher in Q3 as the rotational power cuts did not reach expected levels. 

The RMB/BER Business Confidence Index rose to 33 points from 27 in the previous quarter. But 50 is the neutral level, so business is hardly brimming with confidence. 

The bottom line is that it all adds up to an economy that remains on the ropes. DM