What South Africans should look out for in 2024 – from interest rates to elections

South Africa and the rest of the world are in for an interesting time, with interest rates, inflation, economic growth and elections lined up in the year ahead.

Several market researchers have tried to find some of the major themes that could influence markets in 2024, with this year having the potential for wild swings.

“One only needs to look at the news wires where higher interest rates are grinding their way through the system, wars are wreaking havoc around the world, and climate disasters are becoming increasingly common. Five-year growth prospects for the global economy have never been worse,” TreasuryOne said.

With all this taking place, it is very difficult to figure out what will happen in the macroeconomic environment.

Inflation and interest rates

Across the globe, questions still remain if high inflation will be brought down to normal levels.

While there are arguments that inflation will return to central bank targets due to the Covid-19 era distortions will gradually fade, there are also arguments that inflation will remain elevated as wages and spending rise faster than before the pandemic.

Questions also remain over whether central banks will keep interest rates higher for longer in an effort to quash inflation, as the US economy has proven more robust than initially thought.

As inflation is likely set to reduce this year, the question has shifted from whether central banks will cut rates in 2024 to when.

“The overwhelming feeling is that interest rate cuts are the next moves by central banks, but the real speculation is which central bank will cut first and how much they will cut by year’s end. The smart money is that the Fed will cut first, as they were ahead of the curve when it came to hiking its interest rate, and structurally, their economy is in more of an advanced deflation phase,” TreasuryOne said.

“All major central banks are expected to cut in 2024, with the developed market central banks first. The feeling is that EM Central Banks will also cut but at a slower pace as the contagion effect of the advanced economies first needs to wash through the EM economies.”

In South Africa, Investec Chief Economist Annabel Bishop said that inflation will likely only drop to 4.5% target midpoint in July this year, with the South African Reserve Bank likely to remain hawkish in the first half of the year.

Bishop said that the SARB will see the CPI inflation rate above 5.0% as a disincentive to cut rates in the near term.

Thus, South Africans should also only expect two 25bp rate cuts in the second half of 2024.

Shipping

According to the Bureau for Economic Research (BER), financial and commodity markets will be affected by the wars in Gaza and Ukraine and the developments in the Red Sea.

Following the seizure of an oil tanker on Oman’s coast by Iran, there are fears that the threats to shipping could spread across the Gulf.

This pushed oil prices up yesterday, but these gains were later reversed in the after noon.

“Following an initial spike in December after BP announced it would halt oil shipments through the Red Sea, the price had come down back below $80/barrel as supply did not seem to be impacted as much by the attacks as initially feared,” the BER said.

“The oil price jumped once more this morning after news broke that the UK and US carried out targeted strikes against the Houthi rebels. An escalation could risk the price increasing more significantly as it remains highly sensitive to tension in the broader Middle East.”

Slow growth

High interest rates and inflation are also impacting the consumer percentage of countries’ GDP, and consumer health is also coming under severe pressure.

The Eurozone and the UK are expected to see mild recessions in 2024 as headwinds from previous years throttle these economies, while there’s only a 50% chance that the US will experience a recession, with suggestions that the dollar will stay stronger this year than most analysts expect.

In South Africa, growth is expected to be stronger than in 2023, but this comes from a low base, as load shedding continues to limit the country’s potential.

Bishop said that growth will likely double from 0.5% in 2023 to 1.0% in 2024.

The International Monetary Fund, on the other hand, sees growth hitting 1.8% in 2024, with the possibility of expanding 2.5% to 3% faster should load shedding improve, logistical bottlenecks are dealt with, and major reforms are instituted.

Elections

Countries representing 60% of the global GDP, including the USA, UK and India, are heading to polls this year, with governments, businesses and households adopting a “wait-and-see” approach that will delay major critical decisions.

“This heightened uncertainty seems acute in nations like China, Germany, and the United Kingdom. This a stark warning that such uncertainty could act as a negative supply shock, potentially raising prices and curtailing output, investment, and consumption,” TreasuryOne said.

“The most significant election this year is at the back end of the year. With the US Presidential election, the race seems set to come down to a rerun of 2020, with Donald Trump leading opinion polls to be the Republican candidate despite his mounting legal battles.”

“On a South African front, we have our local elections, and this could be a time of Rand volatility as the polls indicate that this could be a fascinating election with whispers of coalition governments doing the round.”

Read: Big pay hike for domestic workers coming in 2024 – here’s how much you could be paying