The PayInc Economic Index, which tracks the monthly value of electronic transactions cleared through PayInc alongside wholesale cash demand, raised alarm bells on Wednesday indicating that the index dropped to its lowest level since November 2025.
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South Africa's economic recovery is facing renewed pressure after the PayInc Economic Index, fell to its lowest level in seven months, signalling a slowdown in activity as households and businesses grapple with rising fuel costs, higher interest rates and growing global uncertainty.
The latest PayInc Economic Index, which measures the value of electronic transactions processed through PayInc together with wholesale cash demand, declined by 2.1% month-on-month to 102.6 in May 2026, its lowest reading since November 2025.
Shergeran Naidoo, head of stakeholder engagement at PayInc, said the decline points to a moderation in economic activity despite the index remaining higher than a year ago.
Naidoo said the Index said that it shows that both the volume and value of transactions remained largely unchanged in May.
“The primary contributors to the weaker outcome were higher inflation forecasts, with consumer price and producer price indices rising significantly, alongside a slight tapering in cash demand,” Naidoo said.
Independent economist Elize Kruger said the economic environment had become increasingly challenging following consecutive fuel price increases and a recent interest rate hike by the South African Reserve Bank.
“Combined with declining consumer and business confidence, these factors are expected to weigh on economic activity in the months ahead,” she said.
The slowdown reflected in the PayInc index is also evident in several other leading indicators.
The S&P Global South Africa Purchasing Managers’ Index (PMI) dropped to 49.6 in May from 51.6 in April, slipping below the crucial 50-point level that separates expansion from contraction. The survey showed weakening demand conditions, with new orders falling at the fastest pace this year while output declined.
“Cost pressures intensified amid higher fuel prices, pushing selling price inflation to multi-year highs,” the report noted.
Meanwhile, the Absa PMI remained marginally above the neutral level at 50.8 in May, down from 52.6 in April. Although still indicating expansion, the survey pointed to softer business conditions compared with earlier months.
One bright spot in the economy remains the automotive sector. Vehicle sales continued to perform strongly, with total vehicle sales increasing by 12.8% year-on-year in May while new passenger car sales rose by 16.3%.
Transaction data processed through PayInc also pointed to softer activity.
The volume of EFT debit and credit transactions as well as DebiCheck payments contracted slightly during May. While PayShap and Real-Time Clearing transaction volumes recorded modest gains, the overall number of transactions processed through PayInc declined to 185.5 million from 186.3 million in April.
Although transaction volumes were still 5.2% higher than a year earlier, the moderation in growth suggests consumers and businesses are becoming more cautious with spending.
The nominal value of electronic transactions increased only marginally to R1.369 trillion, while the supply of cash to banks also declined, reflecting weaker demand.
Inflationary pressures played a significant role in the latest index decline. PayInc said forecasts for May pointed to consumer inflation of 4.6% and producer inflation of 6.7%, resulting in a sharp increase in the deflator used to calculate the index in real terms.
The worsening outlook has been exacerbated by geopolitical tensions in the Middle East, which have driven energy prices sharply higher.
Kruger noted that petrol and diesel prices had increased by approximately R8 per litre and R10 per litre respectively by early June.
She said estimates by the Bureau for Economic Research show the higher fuel prices could add approximately R45 billion in costs to the economy during the second quarter.
“The likelihood that businesses can fully absorb these increases is low, raising the prospect of broader inflationary pressures across the economy,” Kruger said.
“While the economy remains resilient, the latest PayInc Economic Index points to emerging pressures that could weigh on growth in the months ahead.”
Prof Raymond Parsons, a North West University Business School economist said the latest data confirms the negative impact that the global energy crisis is already having on South Africa’s economy.
“These trends will weigh heavily on domestic economic activity in the months ahead, until the external shocks have been fully dissipated,” Parsons said.
“Depending on whether the geopolitical outlook is stabilising or worsening, there therefore remain downside risks to economic growth this year.”
Parsons added that although South Africa has resilience and economic buffers to draw upon, the outlook for the rest of 2026 will be tough for business and consumers.
BUSINESS REPORT