South Africans should get ‘richer’ over the next five years

South Africa’s economy is set to exit a period of malaise and see meaningful growth over the next five years.

South Africa’s GDP grew by 0.7% in 2023. Although this seemed unlikely at the start of the year due to load shedding, it was still insufficient to keep up with population growth, which averages about 1.5% annually.

This means that South Africans actually got poorer in 2023, as even though the pie grew, there were more mouths to feed. Hence, GDP growth of 1.5% or higher should ensure that South Africans get richer.

Investec Chief Economist Annabel Bishop said that data releases through Q3 2024 and earlier this year support Investec’s forecast of an economic growth of 1.0% this year.

The Bloomberg consensus also shows growth of 1.0% for South Africa in 2024 amid weak global growth and domestic freight constraints.

The IMF said that the economy has shown resilience in the face of disruptions, but persistent structural challenges risk impeding growth and further dropping living standards. This issues include declining GDP per capita, rising debt, high unemployment, poverty and inequality.

Investec believes GDP should grow faster in 2025 and reach 1.7%.

However, the IMF believes South Africa’s growth rate will reach 1.3% in 2024.

The IMF’s figure for 2026 of 1.4% is also far below Investec’s 2.0%.

“At an average of 1.9% seen over the next two years, Investec envisages faster recovery for South Africa, as structural constraints are worked down more quickly, particularly with private sector participation accelerating in the port and rail sectors,” said Bishop.

“The latter years of the five-year forecast period are likely to come out at 2.5% (2027), 2.8% (2028) and 3.1% (2029), with economic growth able to lift further thereafter, leading to higher income per capita and living standard outcomes.”

Investec’s prediction for 2025 is also less optimistic than that of the Bureau for Economic Research (BER), which predicts growth of 2.2% in 2025 due to easing logistics challenges and implementing key economic reforms under the new Government of National Unity (GNU).

Bishop noted that the recent 25 basis point cut in the repo rate and a sharp drop in South Africa’s CPI inflation (4.4% in August) should boost household expenditure.

Further interest rate cuts in 2025 and 2026 are expected, totalling 125 basis points of cuts.

“In addition, rising real incomes as inflation falls further and then remains moderate, and withdrawals under the two-pot retirement system will boost spend,” said Bishop.

She added that Household Consumption Expenditures (HCE) are likely to grow by 1.5% this year, 2.2% next year, and 2.3% in 2026. These exceed the IMF estimates of 0.9%, 1.2%, and 1.3%, respectively.

“The IMF’s forecasts for fixed investment show weakening growth, dropping from 3.1% in 2024 to 2.8% in 2025 and 2.7% in 2026. In comparison, Investec forecasts 4.1%, 4.8%, and 5.0% for the respective years.”

“The acceleration in the growth of this component of GDP, fixed investment, is a key reason for the acceleration in Investec’s GDP forecast over the medium-term, along with the cessation of load shedding as capacity increases along with stability.”

The rand has also gained substantially this month and, while seeing volatility, should strengthen further over the course of the US interest rate-cutting cycle.

Foreign investment into the local bond market has also helped drive yields lower and strengthen the rand.

However, Bishop noted that massive fiscal consolidation is needed to lower borrowing costs, alongside eliminating corruption, wastage, and inefficiencies.

Read: Over 1,000 businesses shut their doors in South Africa in 2024