Big turn for South Africa as IMF outlook shifts

The International Monetary Fund (IMF) has published its latest World Economic Outlook update for October 2024, reversing its position on South Africa from April 2024, now seeing better economic growth for the country.

However, the group has a dim view of the country’s unemployment crisis, which it expects to get worse.

The year started out with a bleak outlook for South Africa when the IMF slashed its growth outlook for the county to a meagre 1% in January, down from 1.8% expected back in October 2023 at the time of its last assessment.

In April, the growth outlook was cut even further, down to 0.9% for 2024, with the group flagging South Africa’s multiple crises around power, water supply, and logistics.

The April outlook also came before the 2024 national elections, where uncertainty around the outcome of the vote was still top of mind, and economists and analysts were unsettled by the rising political turmoil and potential for economically damaging coalitions to form.

However, in the six months since the last report, South Africa has staged something of a turnaround.

In its October update, the IMF now expects South Africa’s GDP growth to be stronger at 1.1% (0.1 point above the January outlook), with 2025’s projection also boosting 0.3 points to 1.5%.

Economists have put South Africa’s GDP growth for 2024 between 1.0% and 1.2%, with 2025’s projections between 1.5% and 2.2%.

The government has set lofty goals of over 3% growth in the near term.

While the country’s many problems persist, the tone and plans of action to address them have turned more positive and gained momentum.

On the power front, load shedding has all but been declared over in the country, with Eskom counting 210 days with no load shedding and a significant turnaround in generation and plant performance.

Other crises—such as the water and logistics collapse—are getting the same treatment, with officials looking to mimic the interventions in the electricity sector to address those challenges.

This is all being spearheaded by the new government of national unity (GNU), which formed after the 2024 elections, comprising the ANC, the DA, the IFP and many other smaller parties.

Markets broadly view the GNU as more business-friendly and pro-economic growth than the alternative. The fresh injection of ministers who are not part of the ANC has also been seen as positive for governance.

While promised reforms will take time to materialise and deliver growth, sentiment around the GNU has boosted markets and supported growth so far.

However, the data comes with caveats.

Even though this marks a more positive turn for South Africa, the growth outlook for 2024 and 2025 is still not fantastic—it is the lowest growth projection among the headline emerging market economies.

The rate is also nowhere close to where it needs to be to keep up with the country’s population growth.

The country’s failure to drive economic growth over the last two decades has led to declining wealth when measured across the population (GDP per capita).

Over the past decade, South Africa’s GDP per capita has declined significantly, pointing to wealth erosion tied to poor economic growth and wages failing to keep pace with inflation.

According to the World Bank and the IMF, South Africa’s GDP per capita was around $6,200 by the end of 2023, a noticeable decline from a peak of nearly $8,000 in the early 2010s.

Notably, GDP per capita in 2024 is lower than in 2014.

Economists have noted South Africa’s population growth is around 1.5% a year – so GDP growth would have to match this, at minimum, to keep GDP per capita stable.

The final black spot against South Africa in the latest report is unemployment.

The IMF does not expect a turnaround in the country’s unemployment crisis in the next two years. It projects an average unemployment rate of 33.7% in 2024 (up from 33.1% in 2023), which will deteriorate to 33.9% in 2025.

According to Stats SA’s latest Quarterly Labour Force Survey, the official unemployment rate increased by 0.6 percentage points from 32.9% in Q1 2024 to 33.5% in Q2 2024.

More worryingly, the expanded unemployment rate in Q2 of 2024 increased by 0.7 percentage points to 42.6%.

Read: South Africans are poorer today than they were in 2014