Recovery in hospitality and transport industries in South Africa

New research by the Bureau for Economic Research (BER) shows that the return of international tourism resulted in the recovery in hospitality and transport in South Africa.

It forms part of the BER’s “other services survey results” for the fourth quarter of 2022, which include hotels, restaurants, transport, real estate, and business services.

Confidence in the other services sector jumped from 53 in the third quarter to 68 in the fourth quarter of 2022.

The current reading suggests that while just over half of the respondents were satisfied with prevailing business conditions in the third quarter, over two-thirds are now satisfied.

The level of other services confidence surpasses all the other sectors covered by the RMB/BER Business Confidence Index (BCI).

More notably, domestic trade confidence retreated to 40 in the fourth quarter after edging up to 47 in the third quarter.

The divergence in confidence between domestic trade and the other services sector is noteworthy.

It is a sign that consumers, particularly on the high-income end, are shifting their spending from goods to services like eating out, accommodation, travelling, and property rental.

The chart below shows business confidence in selected sectors surveyed by the BER.

Summary

The other services sector recorded higher confidence and soaring activity in the fourth quarter.

It comes as hoteliers, restaurateurs and transporters benefit from the rise in international tourism, the shift in spending towards services, and the recovery in road freight.

While the progress has been remarkable, it is important to note that it comes off the relatively low base established in Q4 2021 when travel bans beset the tourism industry.

The performance of the business services sector, which accounts for a hefty 45% of other services, remains vulnerable.

It still faces significant risks because of load-shedding, high diesel costs, poor public infrastructure and insufficient demand.

Overall, GDP growth in the fourth quarter is likely to benefit from this delayed ongoing recovery in the other services sector, which will partially offset the weaker domestic trade outlook.

Against this backdrop, the renewed broad-based rise in the rate of increase in selling prices is concerning and could drag down real economic activity if it deteriorates further.