By: Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano
Economic performance: 2023 and 2024
The South African economy grew by only 0.7% in 2023, constrained by the severe effects of load-shedding and a cost-of-living crisis. Although this marked a likely trough in growth, the weaker-than-expected performance in agriculture, fishing, and forestry, coupled with continued weakness in private sector gross fixed-capital formation, indicates that real GDP growth is likely to remain subdued at 0.7% in 2024. This forecast assumes a rebound in the final quarter of 2024, supported by moderating inflation, employment gains, and a liquidity boost from the two-pot retirement system withdrawals, which have already exceeded R35 billion.
Medium-term recovery: Growth accelerates by 2025
Despite the current challenges, a steady recovery is projected over the medium term, with economic growth accelerating to 1.9% in 2025 and 2026 and surpassing 2.0% by 2027.
Inflation and monetary policy
Inflation is expected to remain subdued in the near term, supported by favourable fuel price base effects and low core inflation. As of October 2024, inflation had moderated to 2.8%, a sharp decline from the 7.8% y/y peak in July 2022. Inflation is forecast to remain below 4.0% through the first half of 2025, averaging 4.5% in 2024, 4.4% in 2025, and 4.5% in 2026 and 2027.
This inflation trajectory gives the South African Reserve Bank (SARB) room to lower interest rates. We anticipate a 25bps cut at each of the next three Monetary Policy Committee meetings, bringing the repo rate to 7.00% by mid-2025.
Currency outlook
The rand remains undervalued and highly sensitive to global dynamics, particularly the strength of the US dollar. In 2024, we expect the currency to average around R18.30/$, with a modest appreciation to R17.80/$ in 2025. Despite recent volatility following the US elections, the rand has demonstrated resilience compared to its peers and other commodity-linked currencies, reflecting reduced domestic political and energy-related risks. However, its trajectory will remain contingent on South Africa's economic reforms and fundamentals relative to those of the US, and geopolitical tensions and trade disputes are likely to sustain volatility.
Week in review
The manufacturing PMI fell below the neutral level in November, recording 48.1 index points from 52.6 points in October. The past two months of data suggests a slowing in recovery momentum in the manufacturing sector - likely related to weak demand. In line with this, business activity and new sales orders slowed, posting 49.0 points (from 55.6) and 45.9 points (from 54.8), respectively. Fortunately, global demand continues to improve and should be joined by local demand going into 2025. This should have contributed to near-term expectations remaining upbeat, at 62.3 points. Risks to the outlook include supplier performance as demand improves, a slower deceleration in producer costs, as well as weaker global trade and activity.
New vehicle sales increased to 48 585 units in November, up by 3 658 units or 8.1% from a year ago. Passenger car sales recorded an increase of 20.0% y/y, still supported by seasonally strong car rental demand which accounted for 19.5% of total passenger car sales. Light commercial vehicles, bakkies, and mini-bus sales declined by 16.3% y/y, while medium as well as heavy truck and bus sales declined by 9.2% y/y and 0.5%, respectively. Year-to-date, new vehicle sales were 3.5% lower than in the corresponding period last year and have struggled to recover to pre-pandemic level. Slower inflation and a continued fall in interest rates should support the consumer environment going into 2025, while continued structural reform should support employment prospects and the operating environment.
Real GDP unexpectedly declined by 0.3% q/q in 3Q24, defying our and the Reuters consensus expectation of an expansion of 0.3% and 0.5%, respectively. On an annual basis, the economy grew by a modest 0.3%, well below forecasts of around 1.2%. The quarterly contraction was primarily driven by a steep 28.8% q/q decline in the volatile agriculture, forestry, and fishing sector, which deducted 0.7 percentage points (ppts) from GDP growth. Excluding this sector, the economy demonstrated resilience, expanding by 0.4% q/q and 1.1% y/y, highlighting the relative stability of sectors less exposed to climate and biosecurity risks. However, the agricultural sector's ongoing weakness means that the economy has grown by just 0.3% y/y (non-seasonally adjusted) in the first three quarters of 2024.
The FNB/BER Consumer Confidence Index (CCI) slipped to -6 index points from -5 points in 3Q24. Nevertheless, the current level of the CCI is the highest festive season reading since 2019 and is considerably higher than the -17 points recorded in 4Q23. While sentiment towards the outlook on the economy and household finances was less upbeat, it remains higher than the willingness of consumers to purchase durable goods at this time. That said, we continue to see an improvement in the latter indicator. Furthermore, and in line with less domestic political and policy uncertainty, the confidence of higher-income households continues to improve. We are concerned that an uncertain global environment, a weaker rand, and rising local fuel prices will weigh on sentiment in the near term. However, a softening cost-of-living and the implementation of the two-pot retirement system should remain catalysts for improved consumer confidence - especially for middle-to-lower-income households.
The current account deficit narrowed further to R70.8 billion in 3Q24 from a revised R75.3 billion in 2Q24 (previously R64.6 billion). As a percentage of GDP, the current account deficit was 1.0%. The improvement came despite a slightly narrower trade surplus on goods, which decreased from R179.5 billion to R177 billion (2.4% of GDP), but rather reflected a narrowing in the services, income, and transfer account deficit (SIT), from -R254.7 billion to -R247.8 billion (-3.4% of GDP). There was a decline in total export values which was worse than the decline in imports, and both reflected lower prices and volumes. South Africa's terms of trade improved, highlighting a faster fall in rand-denominated import prices versus the prices of exports. This data suggests that the deterioration in the current account deficit that is anticipated for this year will be less pronounced than previously feared. However, logistical constraints remain a key hindrance to export growth and, alongside rising domestic demand, increases the odds of worse current account dynamics over the medium term.
Electricity production increased by 2.7% y/y in October, after increasing by 8.5% y/y in September, marking the eleventh successive month of annual increase. This is consistent with the Eskom's improved energy availability factor, which averaged around 63% in October this year compared to 57% in October last year. However, seasonally adjusted electricity production declined by 1.4% m/m, signalling a weak start to the fourth quarter. In 3Q24, electricity production expanded by 2.8% q/q, providing some support to economic growth, though insufficient to offset the contraction in agriculture.
Gross foreign reserves rose to $65.9 billion in November, up from $63.0 billion in October. This increase was driven by a $3.4 billion rise in foreign exchange reserves, which climbed to $49.0 billion from $45.5 billion. Meanwhile, gold reserves declined by $466 million to $10.7 billion, reflecting a slight monthly decrease in gold prices.
Week ahead
Data releases until the end of the year:
| Tuesday, 10 December |
Data on mining production for October will be released. Mining production expanded by 4.7% y/y in September, while seasonally adjusted mining output rose by 3.8% m/m
Data on manufacturing production for October will also be released. Manufacturing output contracted by 0.8% y/y in September. Seasonally adjusted output was flat (0.0%), contrasting with the manufacturing PMI business activity index, which rose to 53.1 points in September from 34.6 in August, indicating potential expansion |
| Wednesday, 11 December |
Consumer inflation for November will be released. Consumer inflation dipped below the inflation target band in October, posting 2.8% y/y. Headline recorded monthly deflation of 0.1%, as marginal contributions from core and food items were outweighed by fuel deflation. We see inflation at 3.2% in November and project a steady lift going into 2025, but not surpassing 4.0%. This trend is supported by positive base effects and contained underlying inflation
Retail sales data for October will also be released. Retail sales growth fell short of expectations in September and decelerated to 0.9% y/y. On a month-on-month basis, volumes fell by 0.8%. Nevertheless, year-to-date retail sales have increased by 1.3% compared to the same period last year, indicating a gradual improvement in the consumer environment. |
| Thursday, 12 December |
The FNB/BER Civil Confidence Index for 4Q24 will be published. In 3Q24, the index surged to a new eight-year high of 50 index points. The improvement was primarily driven by a significant recovery in profit margins, reaching their highest level since 2008. While activity growth moderated slightly compared to the previous year's peak, the survey indicated increased tender activity and growing intentions to expand employment. Nevertheless, respondents continued to express concerns about the negative impact of the construction mafia and government inefficiency in the sector.
The BER inflation expectations survey outcomes for 4Q24 will also be published. Inflation expectations for 3Q24 fell by 0.2ppts to 5.1% for 2024 and 4.8% for 2025. Meanwhile, 2026 and five-year-ahead expectations fell by 0.1ppt to 4.8%. As headline inflation continues to soften, we should see further slowing in backward-looking expectations. The risk to this outlook is rising fuel prices. The Quarterly Employment Statistics (QES) for 3Q24 will also be published. In 2Q24, formal non-agricultural employment rose by 40 000 jobs (0.4%), mainly driven by a 90 000-job increase in community services (3.1%). Year-on-year, employment fell by 144 000 (-1.3%) but has increased by over 500 000 since 2Q19, reaching 10.7 million workers. Gross earnings declined slightly, by -0.5% q/q, but were up 3.9% y/y. With reduced policy uncertainty and improving economic sentiment, growth and job creation are expected to accelerate. Data on producer inflation for November will also be released. Producer inflation entered deflationary territory in October, with prices falling by 0.7% y/y and by 0.7% m/m. Excluding petroleum-related products, producer inflation stood at 2.7% y/y and recorded a marginal decline of 0.2% m/m. Intermediate producer inflation, which reflects manufacturer input costs, rose to 5.5% y/y, largely reflecting base effects as a monthly decline of 0.4% was recorded. |
| Tuesday, 17 December | The leading business cycle indicator for October will be published. The leading indicator increased by 0.9% m/m in September and 2.0% y/y, highlighting the continued improvement in economic conditions relative to last year. |
| Tuesday, 31 December |
Private sector credit extension (PSCE) data for November will be released. PSCE grew by 4.3% y/y in October, as household credit increased by 3.2% y/y and corporate credit growth was 5.2% y/y. Credit growth is currently outpacing inflation and should continue to improve as interest rates decline.
The trade balance for November will be published after recording a surplus of R14.63 billion in October. YTD, the trade balance has recorded a surplus of R145.5 billion, significantly more than the R83.4 billion recorded over the corresponding period last year. |
The key data in review
| Date | Country | Release/Event | Period | Act | Prior |
|---|---|---|---|---|---|
| 2 Dec | SA | Manufacturing PMI | Nov | 48.1 | 52.6 |
| SA | New vehicle sales % y/y | Nov | 8.1 | 5.7 | |
| 3 Dec | SA | GDP % q/q | 3Q24 | -0.3 | 0.3 |
| SA | GDP % y/y | 3Q24 | 0.3 | 0.3 | |
| 4 Dec | SA | Consumer Confidence Index | 4Q24 | -6.0 | -5.0 |
| 5 Dec | SA | Current Account Balance R bn | 3Q24 | -70.8 | -75.3 |
| SA | Current Account Balance % of GDP | 3Q24 | -1.0 | -1.0 | |
| SA | Electricity production % y/y | Oct | 2.7 | 8.5 | |
| 6 Dec | SA | Gross foreign exchange reserves $ bn | Nov | 65.9 | 63.0 |
Financial market indicators
| Indicator | Level | 1 W | 1 M | 1 Y |
|---|---|---|---|---|
| All Share | 86,846.42 | 2.4% | 2.0% | 15.5% |
| USD/ZAR | 18.02 | -0.5% | 3.5% | -4.9% |
| EUR/ZAR | 19.07 | -0.2% | 0.3% | -6.8% |
| GBP/ZAR | 22.99 | 0.0% | 1.3% | -3.7% |
| Platinum US$/oz. | 940.70 | 0.6% | -6.0% | 4.2% |
| Gold US$/oz. | 2,631.67 | -0.2% | -4.1% | 30.3% |
| Brent US$/oz. | 72.09 | -1.6% | -4.6% | -6.6% |
| SA 10 year bond yield | 9.56 | -0.3% | -3.8% | -12.0% |
FNB SA Economic Forecast
| Economic Indicator | 2022 | 2023 | 2024f | 2025f | 2026f | 2027f |
|---|---|---|---|---|---|---|
| Real GDP %y/y | 1.9 | 0.7 | 0.7 | 1.9 | 1.9 | 2.2 |
| Household consumption expenditure % y/y | 2.5 | 0.7 | 1.0 | 2.2 | 2.2 | 2.4 |
| Gross fixed capital formation % y/y | 4.8 | 3.9 | -3.2 | 3.8 | 3.5 | 4.9 |
| CPI (average) %y/y | 6.9 | 6.0 | 4.5 | 4.4 | 4.5 | 4.5 |
| CPI (year end) % y/y | 7.2 | 5.1 | 3.5 | 4.9 | 4.8 | 4.5 |
| Repo rate (year end) %p.a. | 7.00 | 8.25 | 7.75 | 7.00 | 7.00 | 7.00 |
| Prime (year end) %p.a. | 10.50 | 11.75 | 11.25 | 10.50 | 10.50 | 10.50 |
| USD/ZAR (average) | 16.40 | 18.50 | 18.30 | 17.80 | 17.90 | 18.60 |
