South Africa to dodge the R-bullet
South Africa looks set to avoid a recession, with Q2 2024 expected to show better growth.
South Africa recorded a quarter-on-quarter contraction of 0.1% in Q1 2024 due to continued load shedding and weaker global and domestic demand.
In its latest Guide to the Economy, the Nedbank Group Economic Unit said that early indications suggest that domestic activity improved slightly in Q2.
A technical recession is two consecutive quarters of negative growth, meaning that South Africa will avoid a recession with a slight improvement in Q2.
“Producers and exporters benefited from reduced load shedding and marginal improvements in rail and port services,” said Nedbank’s economists.
“However, the financial pressure on consumers intensified, as elevated inflation and sharply higher interest rates eroded household incomes and weighed down confidence.”
“These mixed conditions are likely to persist for much of 2024, keeping the economy in a relatively stagnant state, but the cycle should start to turn towards the end of the year.”
Exports are expected to recover in late 2024 as global demand conditions lift and commodity prices improve.
At the same time, declining domestic inflation should boost real household incomes and prompt the South African Reserve Bank (SARB) to start reducing interest rates, enabling a modest recovery in consumer spending.
That said, fixed investment growth is likely to decline from last year’s high base as private firms cut back their capital outlays and cut costs to restore profitability.
The downside will, however, be limited due to continued investment in renewable energy capacity.
Given the ongoing fiscal consolidation, growth in government consumption will be subdued.
Overall, real GDP is expected to grow at a slightly faster pace of roughly 0.9% in 2024 – an improvement from the 0.6% seen in 2024.
“Against this backdrop of sluggish domestic demand, inflation is forecast to ease further, but only slowly, reaching SARB’s 4.5% target on a sustainable basis around the second half of 2025,” said Nedbank’s economist.
“The upside risks to the inflation outlook stem from threats posed by the ongoing geopolitical conflicts and the rand’s underlying vulnerability to any abrupt shifts in risk sentiment driven by changing US interest rate expectations.”
The group expects the SARB’s monetary policy committee (MPC) to start cutting rates in September, followed by another reduction in November.
This will take the repo rate to 7.75% and the prime rate to 11.25% by the end of the year.
2025 is looking good
The outlook for South Africa’s GDP is broadly positive.
In 2025, the nation is expected to see its best economic performance in over a decade.
The Bureau for Economic Research (BER) upped its growth outlook for South Africa in 2025 to 2.2%.
This is due to an expected improvement in the nation’s logistics crisis, as well as the expected economic reforms of the Government of National Unity (GNU).
The BER also noted that the Treasury and the President’s joint initiative, Operation Vulindlela, is speeding up nationwide reforms, which should enable growth.
National Treasury is also committed to stabilising debt and debt service costs, which currently cost the government around R1 billion per day.
National Treasury is also committed to stabilising debt and debt service costs, with the government spending about R1 billion per day to service debt.
Investec’s “upside” view of the economy also expects growth of 2.4% in 2024.
The likelihood of the “upside” view of the economy has increased from 2% to 12%. This “upside case” is likely to see the rand drop below R17.00.
2.2% of 2.4% would be the fastest growth rate South Africa has seen in over a decade, excluding 2021, which rebounded after the Covid-19 pandemic-induced recession of 2020.
With South Africa’s population growing at roughly 1.5% per year, GDP growth being anything less means that the population would get poorer.
Read: Standard Bank warning for banking customers in South Africa
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