Economists hit reverse on South Africa
South Africa’s surprise decline in GDP for the third quarter of the year has set full-year projections back, with economists no longer optimistic that the country could cross the 1% mark.
This has seen forecasts pull back from the more positive growth trend before the GDP numbers came in, falling back towards the same—or worse—levels than in the 0.7% seen in 2023.
According to Bureau for Economic Research (BER) chief economist Lisette IJssel de Schepper, South Africa is likely to scrape by with 0.8% GDP growth in 2024 after the latest results.
She described the Q3 GDP figures as “disappointing”, and dulling the optimistic tone many had taken after the May 2024 elections and the end of load shedding.
“A huge drop in the agricultural component of GDP meant that the economy contracted on a quarterly basis. This sets the entire 2024 back and means that the economy will be lucky to see a marginal acceleration from the 0.7% growth recorded in 2023,” she said.
However, while many were shocked by the lower GDP print, IJssel de Schepper said that it wasn’t all that surprising.
“Even without agriculture, GDP growth would have been sluggish – we would have been glad to hit 1% this year,” she said.
“The manufacturing sector has been hit with shock after shock over the last couple of years, and a few months of no load-shedding and optimism around the GNU is not enough to turn the battered sector around.”
The same holds for the broader industrial production sector in South Africa, she said, with the logistics issues still hurting. .
More positively, consumers are finally getting some welcome relief; however, this is happening very late in the year, meaning it won’t impact the final GDP figure too much.
Slightly lower interest rates and significantly lower inflation are welcome, but do not mean that shopping basket are suddenly less expensive, she said.
There has also been a near-term boost from two-pot retirement withdrawals, which will also alleviate some pressure, “but we will need to see sustained real income and job growth for there to be a meaningful and sustained difference in spending,” she said.
“Indeed, the fact that so many consumers are withdrawing so much just underscores the underlying weakness of the consumer.
“The point is that the lingering weakness in 2024 is not a surprise, but we remain more hopeful about 2025 as long as we continue to see a commitment to further structural reform—and (US president-elect Donald) Trump does not destroy the global economy.”
IJssel de Schepper is not alone in this assessment
Economists at Nedbank have taken an even dimmer view, projecting GDP growth of only 0.5% in 2024, before recovering to 1.5% in 2025.
While the group anticipates a recovery in the fourth quarter of 2024, the Q3 data shows that the economy is far from being out of the woods.
“On the upside, the most significant weakness came from agriculture. Excluding agriculture, the economy grew by 0.4% qoq. Consequently, we still expect the economy to recover in Q4 before strengthening and broadening throughout 2025,” it said.
The boost will likely come from continued improvements in consumer demand as inflation remains subdued and interest rates start to decline more meaningfully, bolstering real incomes and lowering borrowing costs.
An added boost could also come from households’ access to contractional savings enabled by the two pot retirement system.
“However, slower government spending, a modest fixed investment recovery, and the persistent drag from net exports will likely contain the boost from more robust consumer spending to GDP over Q4,” the bank said.
“Altogether, we forecast GDP growth of around 0.5% in 2024, followed by faster growth of 1.5% and 1.8% in 2025 and 2026, respectively.”
Other economists are still cautiously optimistic, however, with Sanisha Packirisamy, Chief Economist at Momentum Investments, still projecting growth at 1%.
“We still expect economic growth to recover from 0.7% in 2023 but remain lacklustre at around 1% in 2024—with the potential of a downside surprise—before rebounding to an expected 1.8% in 2025,” she said.
In its October update, the IMF said it expects South Africa’s GDP growth to be stronger at 1.1% in 2024, with 2025’s projection also boosting 0.3 points to 1.5%.
The South African Reserve Bank’s last projection (at its November MPC meeting) saw growth for 2024 at 1.1%, in line with the IMF. 2025 is projected at 1.7% and 2026 is seen at 1.8%.
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