Fourth quarter GDP improved but economists say its still not great – here’s why

Although South Africa’s economy grew in the fourth quarter with real GDP increasing by 0.6% compared to the third quarter and by 0.9% compared to the fourth quarter of 2023, economists say the increase is not that great.

Jee-A van der Linde, senior economist at Oxford Economics Africa, says although economic growth at the end of the second half of 2024 is an improvement from the start of the year, the weak economic bounce-back does not instil confidence in the South African economy’s prospects for 2025.

“With private sector investment still muted, only three out of 10 subsectors recorded quarter-on-quarter growth. The increase in gross domestic product (GDP) means that the South African economy expanded by 0.6% in 2024, which is 0.5 percentage points lower than our full-year estimation.”

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Van der Linde says the latest data print does not fundamentally alter their view of gradual economic growth in 2025. “Our current baseline is for real GDP to expand by 1.5%, but we concede increasing downside risks to this forecast.

“Consumer demand has been recovering slowly amid improved confidence, lower interest rates and benign inflation, whereas local industry remains stuck in low gear despite the absence of load shedding.”

He points out that policy uncertainty is the main reason why private sector investment has failed to gain ground since last year’s national elections, as it is a key consideration for many investors.

“In addition, recent squabbles between members of the government of national unity (GNU) about several policy matters will likely weigh on first-quarter investment, while fraught South Africa/US relations will make it more challenging to navigate the Trump presidency.”

Mild recovery in GDP confirms need for GNU priorities

Prof Raymond Parsons, economist at the North-West University Business School, says although positive, the mild recovery in GDP again confirms that the GNU is right to have put much higher inclusive growth and stronger job creation as South Africa’s key overarching economic priorities.

“The latest data again emphasises that growth in South Africa has been too low for too long and must be remedied by maintaining the right economic environment for investment and growth. Coming on the eve of the postponed Budget 2025, the modest GDP growth of 0.6% must therefore also inform the tough choices facing the GNU in finalising an amended budget.

“The GNU’s Medium Term Development Strategy itself has set an overall growth target of 3%, which is about the minimum needed for South Africa to begin to make a big dent in its unemployment levels and help to alleviate poverty.”

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Therefore, Parsons says, the budget speech on 12 March must show a policy mix that carefully calibrates fiscal consolidation, avoids a negative “tax-and-spend” fiscal cycle and supports growth-enhancing measures.

“Accelerated growth-friendly structural reforms, especially in infrastructure development, must be implemented urgently to lift South Africa’s medium term growth to 3%, say by 2027. Fixed capital formation remains a weak link in the country’s slow and uneven economic recovery, as it is still only at about 15% of GDP instead of the NDP’s target of 25%-30%.”

He also points out that household spending has done most of the “heavy lifting” in South Africa’s economic upturn so far. “Higher sustainable growth also helps to create the economic buffers and resilience needed to mitigate any external shocks caused by elevated global uncertainty.”

Improved GDP probably start of gradual economic recovery

Crystal Huntley, Johannes Khosa and Nicky Weimar, economists at the Nedbank Group Economic Unit, say the expansion in GDP of 0.6% was slightly better than their forecast of 0.5%, but well below the consensus market forecast of 0.9%.

“Today’s numbers probably reflect the start of a gradual economic recovery. We expect the economy to gain moderate momentum throughout 2025. The boost will likely come from continued improvements in consumer demand as inflation remains subdued and interest rates ease a bit more, bolstering real incomes and lowering borrowing costs.

“We also expect a recovery in fixed investment boosted by increased outlays on infrastructure by the public sector. However, slower government spending due to fiscal constraints and the persistent drag from net exports will likely contain the boost from more robust consumer spending to GDP in 2025. Altogether, we forecast GDP growth of around 1.4% in 2025 and 1.8% in 2026.”

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Cautious optimism that GDP will increase towards 2%

Thanda Sithole, senior economist at FNB, says the outturn, largely driven by a strong recovery in agriculture, forestry and fishing, aligned with FNB’s and the Reuters consensus expectation of 0.6%.

“Despite the disappointing growth outcome in 2024, we remain cautiously optimistic that GDP growth should accelerate toward 2.0% in 2025-2026 and exceed this threshold in 2027. However, this pace of growth remains insufficient to significantly reduce unemployment and poverty.

“Key growth drivers include stable and low inflation, the economic boost from two-pot retirement system withdrawals, easing monetary policy and structural reforms in energy and logistics. Additionally, government’s push to expand public infrastructure investment should provide further support.”

Sithole says the stability of the GNU and the effective implementation of its policy priorities will be critical to sustaining growth. However, she points out that risks remain, including heightened global trade policy uncertainty, weak external demand and domestic headwinds, such as a more restrictive tax policy, faster-than-expected inflation and a slower pace of interest rate cuts, all of which could weigh on growth.