Good news expected for South Africa’s GDP figures this week
South Africa’s economy is forecast to grow modestly in the third quarter of 2024, signaling a potential turning point after a period of sluggish performance.
This is according to a report from Nedbank Group’s Economic Unit by Crystal Huntley and Nicky Weimar.
The report shows that the steady absence of load-shedding, improvements in logistics, and falling inflation have contributed to a slight uptick in economic activity.
As a result, the report notes that real GDP is projected to have grown by 0.5% quarter-on-quarter, slightly faster than 0.4% in Q2.
This puts South Africa on track to post GDP growth of 1% in 2024—in line with wider predictions—and 1.7% in 2025.
However, challenges and risks remain
Improved operating conditions
A key factor in the third quarter’s positive performance was the consistent availability of electricity.
For over eight months, Eskom, the national power utility, has managed to avoid implementing load-shedding, a rolling blackout system that has crippled the economy in recent years.
This improved energy situation can be attributed to a combination of weaker demand due to subdued economic activity, increased electricity supply, and a growing shift to renewable energy sources.
Logistics show modest gains
Alongside the energy sector, Huntley and Weimar note that there have been marginal improvements in the country’s logistical networks.
For the year to date, 121 million tonnes have been moved via rail, up by a slight 0.4% from the same period last year.
According to the latest National Logistics Crisis Committee (NLCC) Pulse Report, the average time spent moving freight by road has fallen across seven of the eight major transport corridors.
Transit times for road freight have decreased across seven of the eight major transport corridors. The report highlights the N1 Cape Town corridor, which experienced a significant reduction in transit times of 26 hours.
Port call durations at Cape Town and Richards Bay also declined noticeably.
Mixed sector performance
While the overall economic picture showed signs of improvement, performance across different sectors was mixed.
Domestic trade likely contracted in Q3 due to sharp declines in wholesale sales, continued weakness in the motor trade, and reduced spending on food and beverage services.
The mining, manufacturing, and construction sectors managed to increase output modestly, benefiting from the improved operating environment.
The finance, real estate, and business services sector is anticipated to have experienced steady growth, supported by moderate growth in credit demand and a slow recovery in commercial property.
Q3 unemployment drop, but figures remain high
South Africa’s official unemployment rate has reached 32.1% for the third quarter of 2024—improving by 1.4 percentage points over the previous quarter.
According to Stats SA Quarterly Labour Force Survey, the number of employed persons increased by 294,000 to 16.9 million in Q3 2024.
There was also a decrease of 373,000 in the number of unemployed persons to 8.0 million.
With that said, South Africa’s unemployment figures remain alarmingly and unsustainably high, with the expanded unemployment rate at 41.9%.
Positive outlook for Q4 2024 and 2025
Nedbank’s economic unit expects the recovery to gain further momentum in the final quarter of 2024 and into 2025.
Factors contributing to this positive outlook include:
- Continued reliable electricity supply and further improvements in logistics.
- A more upbeat business and consumer sentiment following the moderate political outcome of the Government of National Unity (GNU).
- Global and domestic demand is reinforced by continued disinflation and monetary policy easing.
- A boost to spending from access to contractional savings through the two-pot retirement system.
Not all smooth sailing – structural issues remain
Despite the positive signs, the report acknowledges the persistence of deep-seated structural challenges in the energy and logistics sectors.
These issues continue to limit South Africa’s international competitiveness and constrain the economy’s ability to fully capitalise on global economic upswings.
Medium-term outlook
The report notes that the South African economy is expected to experience a moderate recovery over the medium term, with GDP growth of 1% in 2024 and 1.7% in 2025.
Several factors contribute to the positive outlook:
- Easing inflation and interest rates: Lower inflation and interest rates are expected to boost demand.
- Improved consumer confidence: Declining inflation and rate cuts should increase consumer confidence and spending.
- Government infrastructure investment: A R393 billion investment in transport, water, and sanitation will support the construction sector, though delivery risks remain.
- Tourism growth: Robust tourism and accommodation sectors are anticipated due to rising international travel.
- Recovery in fixed investment: A significant rise in new projects is expected in 2024, according to the Nedbank Capital Expenditure Project Listing.
Challenges and risks
Despite the positive outlook, several challenges could hinder recovery:
- Structural constraints: Energy and logistics sectors face deep-rooted issues that limit production, particularly in mining and manufacturing.
- Government reform delivery: The government’s ability to implement promised reforms and infrastructure investments remains uncertain, given its poor track record.
- Global economic risks: Potential changes in US policies, such as tariffs, could slow global trade and growth, possibly impacting South Africa’s recovery.
Going forward
While challenges and risks remain, the report notes that the South African economy appears to be turning a corner.
The absence of load-shedding, coupled with marginal improvements in logistics and falling inflation, has created a more favourable environment for businesses.
The recovery is expected to gain further traction in the coming quarters, driven by both cyclical and structural factors.
However, it notes that addressing the long-standing issues in the energy and logistics sectors remains crucial for unlocking the country’s full economic potential.
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