Sour turn for South Africa’s economy

Although inflation is expected to drop in 2024, analysts, businesspeople, and trade union officials are less optimistic about the rand and South Africa’s economic growth and have turned sour in their projections.

According to the latest Inflation Expectations Survey from the Bureau of Economic Research (BER), analysts, businesspeople, and trade union officials’ average headline CPI inflation expectations for 2024 dropped from 5.7% in 2023Q4 to 5.4% in 2024Q1.

For 2025, inflation predictions dropped from 5.6% in 2023Q4 to 5.3% in 2024Q1.

“The respondents now expect inflation to average 5.4% this year, 5.3% next year and 5.2% in 2026,” the BER said.

“Among the three social groups, only analysts expect that inflation will subside to below 5% and stabilise at 4.7% in 2025 and 2026. Business people and trade union officials foresee inflation getting stuck above 5%, even in 2026.”

For the five-year inflation expectations, on average, the respondents lowered their view from 5.2% to 5.1%. This is the fourth consecutive quarter that the forecast is still at just above 5%.

“One-year-ahead inflation expectations of households edged down in the first quarter of 2024; it declined from 7.2% in the fourth quarter to 6.7%.”

“In contrast, their five-year-ahead inflation expectations increased from 10.2% to 10.4%. This upward revision was mostly due to low-income households who changed their view.”

Warning signs

Despite the improved inflation forecasts amongst analysts, businesspeople, and trade union officials, they were less optimistic about the nation’s forecast economic growth and the rand.

Economic growth forecasts stand at an average of a meagre 0.8% in 2024 – below the 1.0% predicted by the International Monetary Fund, Deloitte, and the Nedbank Group Economic Unit.

This is 0.5 percentage points lower than the previous quarter, with trade union officials slashing their forecast from the most optimistic 1.5% in 2023Q4 to the most pessimistic 0.5% in 2024Q1.

“The three groups anticipate that growth will accelerate to 1.1% next year, though they have divergent views – only analysts expect growth above 1% in 2025,” the BER said.

Moreover, the expectations for the rand have worsened from an expectation of ending this year at R18.44/$ in 2023Q4 to R18.94/$ in 2024Q1.

The rand is expected to drop further in 2025, ending the year at R19.26. Trade union officials were again the most negative, expecting the rand to end 2025 at R19.87/$.

However, looking more positively, the three social groups agreed that salaries and wages will increase by around 5% in both 2024 and 2025, with their view for this year (5.1%) unchanged from the previous quarter.

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