IMF delivers bad news for South Africa

 ·20 Jan 2025

The International Monetary Fund’s (IMF’s) World Economic Outlook update for January 2025 has slashed South Africa’s GDP growth expectations for 2024 – to a level about the same as 2023, the worst year of load shedding on record.

According to the IMF’s outlook, it is only projecting GDP growth of 0.8% in 2024 – this is fractionally higher than the 0.7% seen in 2023, the worst year of load shedding on record.

What’s notable about the latest estimate is that it’s a reversal of the trend seen in 2024, where the outlook started bleak at just 1.0.

The January 2024 saw the IMF slash its growth outlook down to 1% from 1.8% expected back in October 2023.

In April 2024, 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 at the top of the mind, and economists and analysts were unsettled by the rising political turmoil and the potential for economically damaging coalitions to form.

However, in October 2024 – the time of its last assessment – its growth projections were bumped up to 1.1% thanks to the extended recovery from load shedding, the formation of the Government of National Unity (GNU) following the elections, and positive movement on reforms.

Unfortunately, despite the positive sentiment and steps in the right direction, South Africa’s GDP growth struggled to deliver. GDP data for the third quarter of the year came as a huge shock to markets.

Instead of the 0.5% GDP growth pencilled in by analysts and economists, Stats SA recorded a decline of 0.3% for the quarter, driven by a significant slump in the agriculture, forestry and fishing industries, which decreased by 28.8%, contributing 0.7 of a percentage point to the negative GDP growth.

While the agricultural sector has questioned this figure, the data from Stats SA stands and is reflected in the IMF’s outlook.

The numbers reflect an economy that is still under significant strain.

Even though load shedding is largely a thing of the past, the first quarter of 2024 still experienced national outages, and economic recovery wasn’t instant. Further to this, pervasive power issues continue in major metros due to decades of neglected infrastructure.

Adding to South Africa’s woes are the ongoing water and logistics crises. Plans have been put in place to address these, but they will take time to play out.

Ramaphosa’s fairy tale

Positively, the IMF’s projections for 2025 and 2026 are unchanged and remain at the boosted estimates from October 2024.

This is 1.5% growth for 2025 and 1.6% growth for 2026.

KPMG South Africa forecasts economic growth of 1.5% in 2025 and a further 1.8% in 2026.

The Bureau for Economic Research’s (BER’s) current baseline forecast is for economic growth in South Africa to average just below 2% from 2026 to 2029.

While this points to ongoing recovery and a positive trendline in growth, it does fall short of the 3% ideal that President Cyril Ramaphosa and the seventh administration under the GNU are trying to make a reality.

Economists have noted that it is not impossible to reach the 3% goal, but it would require perfect execution of plans to address South Africa’s various crises, along with a surge in investment and, crucially, proper governance.

This means buy-in from the public and private sectors, supported by sound budgeting, investment and a stable government.

President Cyril Ramaphosa has already promised positive strives in this direction, with investors seemingly going all-in and expecting the government to deliver on this.

This past week, the president also met with business leaders in the country to get their commitment to continuing to partner with the state in addressing areas like water, infrastructure, logistics, crime and electricity.

However, there are also stumbling blocks ahead.

While the government seeks to draw the private sector closer, it is also threatening to shut down entire industries like private healthcare insurance and pushing policies that would see private company profits shaved off to fund schemes like BEE.

Questions also hang over the stability of the GNU over the medium term, with the 2026 municipal election coming next year, an ANC elective conference for new leadership after that.

These concerns have also been highlighted by the IMF, but the fund still views South Africa’s prospects as positive.

In its end-of-year review, the group said South Africa’s outlook is improving, and risks are tilted to the downside.

“The medium-term outlook critically depends on the GNU’s ability to fully implement structural reforms addressing impediments to growth,” it said.

“Resistance to and delays in the implementation of needed reforms could weaken confidence, increase financing costs, and erode growth.

“On the upside, faster and more ambitious reform implementation under the new GNU, or stronger global growth, could contribute to domestic confidence, lower financing costs, and higher exports and growth.”


Read: South Africa sitting on a ‘gold mine’ for jobs and economic growth

Show comments
Subscribe to our daily newsletter