By: Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano
Turning the corner: SA's economic prospects in 2024 and beyond
The South African economy is experiencing a modest recovery following lacklustre post-pandemic growth of 0.7% in 2023. This slow growth largely reflected the severe impact of record levels of electricity load-shedding and the cost-of-living crisis. The South African Reserve Bank (SARB) estimated that load-shedding reduced GDP growth by 1.5 percentage points (ppts) in 2023. However, this drag is expected to be minimal in 2024 at just -0.13ppts, with no further impact projected for 2025 and 2026.
Easing energy constraints, along with slowing inflation, interest rate cuts, and optimism surrounding the Government of National Unity (GNU), supports a modest economic recovery. However, growth could accelerate further if pro-growth reforms are implemented in a timely manner.
Economic growth in the first half of 2024 has been sluggish, averaging just 0.2% q/q, as high interest rates, nominal wages lagging inflation, and election-related uncertainty weighed on sentiment and economic activity. Weak domestic and external demand, along with drought and biosecurity challenges, also hindered productive sectors. However, many of these challenges have now subsided, paving the way for a modest recovery, which we expect to become more evident in 2025 onward.
Economic growth projections: lifting toward 2%
Economic growth is expected to increase toward 2% next year. While 1H24 data suggests that GDP growth will likely average 1.0% for the year, a projected increase towards 2% in 2025 is supported by less restrictive monetary policy and an anticipated rise in real wage income as inflation moderates. This improved environment provides a stronger foundation for the GNU to advance and accelerate reforms to boost business confidence and fixed investment
Fixed investment is currently in recession but could rebound as confidence and economic conditions improve. In 2Q24, fixed investment declined by 1.4%, marking the fourth consecutive quarterly contraction, as private business investment lost momentum and reversed its prolonged recovery toward pre-pandemic levels. Year-to-date, fixed investment is down 5.0%, reflecting broad-based weakness across all asset types. After two years of solid growth in 2022 and 2023, largely driven by the initial wave of renewable energy investments, this ongoing weakness suggests that fixed investment will drag GDP growth in 2024, before contributing positively again from 2025 onward.
External trade dynamics
Exports and imports remain weak, with imports down sharply by 7.7% in the 1H24 compared to the same period last year, while exports declined by 1.6%. The drop in imports reflects weak domestic demand and has helped maintain a merchandise trade surplus. Meanwhile, the decline in exports aligns with subdued domestic production and weak external demand. Notably, long-standing port and rail challenges continue to be binding constraints on export competitiveness. However, there is potential for exports to rise modestly as domestic pro
Week in review
Private Sector Credit Extension (PSCE) growth accelerated to 4.9% y/y in August, up from 3.5% in July. This increase was primarily driven by the corporate sector, where credit growth surged to 6.5%, compared to 3.7% previously. In contrast, household credit growth moderated slightly, slowing from 3.2% to 3.1% during the same period. When adjusted for inflation, PSCE experienced modest growth of 0.5% in August, marking the first expansion in 12 months. However, year-to-date inflation-adjusted PSCE remains down by 1.1% on average, highlighting unfavourable demand-supply dynamics amid high borrowing costs and tightened credit conditions.
The trade balance recorded a surplus of R5.6 billion in August, down from the revised R17.1 billion (previously R17.6 billion) surplus in July. Exports declined by 5.0% m/m (and 8.3% y/y) to R165.6 billion, while imports rose 1.8% m/m but fell 4.8% y/y to R159.9 billion, compressing the trade surplus. Despite this, the cumulative trade surplus for January to August reached R88.9 billion, significantly higher than the R44.8 billion recorded during the same period last year. Cumulatively, exports are down by 1.8%, while imports have dropped by 6.3%, reflecting weak domestic demand, which continues to support the goods trade surplus. Notably, imports of vehicles and other transport equipment fell by 20.9%, machinery and other equipment by 13.9%, and mineral products by 5.7%.
Week ahead
The Absa manufacturing PMI increased to 52.8 index points in September, from 43.6 points in August. The PMI has been choppy but the average in 3Q24 was 49.6 points, up from 47.9 in 2Q24 and 48.2 in 1Q24. Therefore, conditions in the manufacturing sector have improved, with local and external demand likely on an uptrend. Interest rate cuts in SA and its trading partners should bode well for conditions going forward. In line with this, business activity, sales orders, and near-term expectations were in expansionary territory in September. Supplier delivery times are also improving and could indicate that the sector is better positioned to take advantage of rising demand. In addition, purchasing prices are falling, reflecting slowing producer inflation amid a stronger rand, and falling fuel prices. Ultimately, continued improvement in manufacturing conditions should bode well for employment prospects.
Total new vehicle sales recorded 44 081 in September, a decline of 1 889 units or 4.1% compared to September 2023. Year-to-date, vehicle sales reached 401 169 units, a decline of 5.8% when compared to the same period last year. Nevertheless, new passenger vehicle sales increased by 2.0% y/y to 30 218 units, supported by the rental industry which accounted for 28% of new passenger car sales. Light commercial vehicle sales fell by 17.1% y/y, medium commercial vehicle sales increased slightly by 0.5%, while heavy trucks and busses declined by 18.0%. A stronger rand, slower inflation, falling interest rates, and improving consumer confidence should support vehicle sales going forward.
Electricity production continued to improve relative to last year. In August, production growth was 6.3% y/y, after rising by 8.5% in July. Seasonally adjusted electricity production decreased by 0.7% m/m, after recording 1.3% growth in the previous month. Consumption revealed similar trends. We firmly believe that the electricity supply crisis peaked in 2023. While rising economic activity could pose a challenge to energy security, higher private sector generation capacity and the continued drive to invest in diversified supply of energy should keep load-shedding limited. The sector should contribute to growth more sustainably in the future.
Week ahead
On Monday, data on South Africa's gross foreign exchange reserves for September will be published. Gross reserves increased further to $63.2 billion in August from $62.3 billion in July. Higher gold prices continue to support rising gold reserves. Valuation and asset price adjustments have also supported higher SDR holdings and foreign exchange reserves. These were marginally countered by foreign exchange payments made on behalf of government.
On Thursday, data on mining production for August will be released. Mining production, not seasonally adjusted, unexpectedly contracted by 1.4% y/y in July, following a 3.6% y/y decline in June. Seasonally adjusted mining output also fell by 0.9% m/m, compared to a 1.7% decline in June, signalling sustained weakness into 3Q24. Year-to-date (January to July), mining output is up marginally by 0.2%, compared to a 1.7% decline over the same period last year. Excluding gold, output has risen by 1.4% so far this year.
Also on Thursday, data on manufacturing production for August will be released. Manufacturing output, not seasonally adjusted, increased by 1.7% y/y in July, rebounding from a 5.5% y/y contraction in June. Seasonally adjusted output volumes expanded by 2.1% m/m after a 0.4% decline in June, signalling a positive start to 3Q24. This aligned with the improvement in the PMI business activity index, which rose to 50.8 points from 36.3 in June. Year-to-date (January to July), output remains lower by 0.4% compared to the same period last year, weighed on by weaker production in the automotive, basic iron and steel, and furniture divisions.
The key data in review
| Date | Country | Release/Event | Period | Act | Prior |
|---|---|---|---|---|---|
| 30 Sep | SA | Private Sector Credit Extension % y/y | Aug | 4.9 | 3.5 |
| SA | Trade balance R billion | Aug | 5.6 | 17.1 | |
| 1 Oct | SA | Absa/BER Manufacturing PMI | Sep | 52.8 | 43.6 |
| SA | New Vehicle Sales % y/y | Sep | -4.1 | -4.7 | |
| 3 Oct | SA | Electricity production % y/y | Aug | 6.3 | 8.5 |
Data to watch out for this week
| Date | Country | Release/Event | Period | Survey | Prior |
|---|---|---|---|---|---|
| 7 Oct | SA | Gross foreign exchange reserves $ billion | Sep | -- | 63.2 |
| 10 Oct | SA | Mining production % m/m | Aug | -- | -0.9 |
| SA | Mining production % y/y | Aug | -- | -1.4 | |
| SA | Manufacturing production % m/m | Aug | -- | 2.1 | |
| SA | Manufacturing production % y/y | Aug | -- | 1.7 |
Financial market indicators
| Indicator | Level | 1 W | 1 M | 1 Y |
|---|---|---|---|---|
| All Share | 86,461.05 | -1.0% | 5.2% | 22.5% |
| USD/ZAR | 17.50 | 2.0% | -2.7% | -9.5% |
| EUR/ZAR | 19.29 | 0.5% | -2.8% | -4.9% |
| GBP/ZAR | 22.85 | -0.7% | -2.7% | -2.5% |
| Platinum US$/oz. | 990.67 | -1.7% | 9.7% | 14.4% |
| Gold US$/oz. | 2,655.90 | -0.5% | 6.5% | 45.8% |
| Brent US$/barrel | 77.62 | 8.4% | 5.2% | -9.5% |
| SA 10 year bond yield | 9.82 | 3.7% | -1.4% | -18.0% |
FNB SA Economic Forecast
| Economic Indicator | 2021 | 2022 | 2023f | 2024f | 2025f | 2026f |
|---|---|---|---|---|---|---|
| Real GDP %y/y | 5.0 | 1.9 | 0.7 | 0.9 | 1.7 | 1.8 |
| Household consumption expenditure % y/y | 6.2 | 2.5 | 0.7 | 0.8 | 1.8 | 1.8 |
| Gross fixed capital formation % y/y | -0.4 | 4.8 | 3.9 | 1.2 | 4.8 | 3.8 |
| CPI (average) %y/y | 4.5 | 6.9 | 6.0 | 4.9 | 4.4 | 4.5 |
| CPI (year end) % y/y | 5.9 | 7.2 | 5.1 | 4.5 | 4.4 | 4.6 |
| Repo rate (year end) %p.a. | 3.75 | 7.00 | 8.25 | 8.00 | 7.50 | 7.50 |
| Prime (year end) %p.a. | 7.25 | 10.50 | 11.75 | 11.50 | 11.00 | 11.00 |
| USDZAR (average) | 14.80 | 16.40 | 18.50 | 18.40 | 17.60 | 18.30 |
