South Africa just puttering along
The growth outlook for South Africa in 2024 is murky, with several domestic constraints halting any meaningful change.
The Nedbank Group Economic Unit predicts that South Africa’s GDP will only see total growth of 1% in 2024 before rising slightly to 1.5% in 2025.
This aligns with the International Monetary Fund, which dropped its growth outlook for South Africa in 2024 from 1.8% to 1.0%.
In Nedbank’s latest Guide to the Economy, economist Johannes Khosa said that the underlying economic conditions in South Africa will remain weak in the first half of 2024 before improving slightly in the second half.
“In the absence of significant operational improvements at Eskom or a massive increase in alternative power generation, load-shedding will persist, placing a ceiling on economic growth.
New renewable energy projects will increasingly contribute more to the electricity supply, gradually reducing the drag from load shedding. Even so, progress is likely to be slow given limited grid capacity,” Khosa said.
“Operational failures at Transnet have escalated, undermining rail transport and significantly delaying cargo processing at the ports. These will continue to disrupt output, inflate operating costs, and erode profitability across all industries.”
“At the same time, global demand will likely weaken further, limiting the upside for commodity prices and weighing on our exports.”
That said, most of South Africa has experienced good rainfall at the end of 2023 and early 2024 despite the fears of drier weather caused by El Nino. This should keep agricultural output relatively steady during 2024.
Meanwhile, the services sector is expected to struggle as domestic demand weakens and the strain on household incomes and company profits intensifies.
Spending is only expected to increase in the second half of 2024 as inflation moderates, which, in turn, will lead to the South African Reserve Bank (SARB) dropping interest rates.
“However, there is a risk that the pressure on spending could persist into the second half of the year if SARB delays interest rate cuts and employment growth fades as the unfavourable economic environment prompts companies to retrench workers,” Khosa said.
Consumer spending is expected to grow by a modest 0.6% in 2024 before increasing 1.8% in 2025.
Investment
The outlook for fixed investment is clouded by the challenging operating conditions, with the RMB/BER Confidence Index falling to 31 in Q4 from 33 in Q3 and is unlikely to improve significantly in 2024 due to constant infrastructure constraints and slow economic reforms.
This, along with fading profits from weakened demand and higher production costs, will scare private firms off spending capital. Gross fixed capital formation (GFCF) is thus expected to grow only 0.5% in 2024 before rising to 3.9% as renewable energy investments start to come online.
“Faster growth in fixed investment can be achieved through accelerating structural reforms, restoring fiscal discipline, and tackling crime and corruption, which will lift business confidence, raise the country’s potential growth rate, and encourage investment by the private sector,” Khosa said.
Government consumption expenditure (GCE) is also expected to decrease due to the sharp failure in government finances caused by a collapse in corporate tax revenue as weaker demand and higher operating costs drained profits.
With the Medium-term Budget Policy Statement showing upward revisions in budget deficits and borrowing costs, the government must contain spending. Khosa forecasts GCE at an average of 1.5% in 2024 and 2025.
“However, there is a risk that GCE growth could be higher than anticipated in 2024 due to unplanned election-related spending.”
The nation’s net export position will also drag on GDP, with export volumes constrained by load shedding and Transnet’s port troubles.
Subdued commodity prices will also lessen the rebound of exports, whilst imports are also expected to decline, albeit slower than exports, due to fragile domestic demand.
Although imports for renewable energy projects will continue, this is unlikely to increase as quickly as last year, when the sudden rise in load shedding led to a mad rush to secure alternative power sources.
“Escalating global geopolitical tensions and trade protectionism also complicate the outlook for global supply chains and trade, which filter through to the South African economy.”
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