Here’s hoping for a better 2025

Economists at Nedbank say the prospect for jobs, inflation and interest rate cuts are not looking great for 2024, but relief should be coming in 2025.

In the group’s weekly economic monitor, the economists reviewed a relatively data-heavy week, which included weaker than expected mining data, slightly better retail sales data, and bleak jobs numbers with unemployment ticking higher.

While the mining data was not wholly unexpected, given the persistent structural constraints on the sector, a turn for retail and the jobs market hinges on several factors which are not likely to turn positive until the tail-end of 2024 and into 2025.

Retail sales, which remain below pre-Covid levels, reflects weak consumer demand in a high interest-rate environment – and reprieve is only likely to come toward the end of 2024 as real incomes start to recover from the moderation in inflation, the group said.

The outlook for the job market, in particular, remains poor, Nedbank said.

“Employment in the services industries will likely stagnate as restrictive monetary policy continues to weigh on domestic demand, hurting confidence, making consumers wary of spending, and companies’
unwillingness to undertake fixed investment,” it said.

“At the same time, public sector employment will continue to be restricted by government caps on staff numbers to support necessary fiscal consolidation.”

While structural constraints have eased since the start of the year, with reduced load-shedding and improved transport services, most producers and exporters will probably focus on restoring their profit margins, which were badly depleted by the severe disruptions and surge in operating costs last year, the economists said.

“Consequently, we expect job creation to remain weak in 2024, with employment drifting sideways. A more meaningful recovery is likely next year as inflation dips towards 4.5% and the SARB reduces interest rates more significantly, creating space for faster growth in domestic demand and job creation.”

In addition, agriculture, mining and manufacturing could also increase employment in 2025 as global demand picks up and commodity prices strengthen, “but only if the country manages to sustain the improvements in power supply and transport services,” Nedbank said.

Nedbank’s forecasts see the South African Reserve Bank cutting rates twice in 2024—25bps in September and 25bps in November—however, other views are that rates will remain on hold for the rest of the year.

In either view, the tone has shifted to see a longer and slower cutting cycle coming into effect, with 2025 holding the bulk of the cuts.

As such South Africans are likely to see their current strained position persist for most of 2024, with some relief hopefully coming in the new year.

Read: Pain for households in South Africa setting in for the long haul