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The latest quarterly gross domestic product (GDP) numbers did not shoot the lights out. South Africa’s GDP increased by 0.4% in the second quarter of 2024, avoiding a recession after a contraction of 0.1% in the first quarter.
Nevertheless, Jee-A van der Linde, senior economist at Oxford Economics Africa, says green shoots are emerging and the GDP numbers for the second quarter provide a base for more rapid economic momentum over the coming quarters.
“The GDP numbers largely came in as we anticipated, with the exception of the stronger-than-expected lift in household consumption. Household consumption expenditure has been flat since the second quarter of 2023, which provided a low base for the stronger-than-expected growth in the second quarter.”
He says demand conditions are still not ideal but should improve in the second half of the year on the back of rising confidence and lower interest rates. “The benefits of easing supply-side constraints and post-election optimism should start to show in the national accounts data for the third quarter and hopefully translate to increased investment to raise South Africa’s growth potential and help unlock new jobs.”
However, he says, “We need evidence of sustained improvement in South Africa’s economic landscape, specifically from a governance and operational perspective, before we can consider raising our forecasts for South Africa’s medium- to long-term growth.”
Oxford Economics Africa expects real GDP growth to average around 1.7% per year over the next five years and revises its current 2024 real GDP forecast of 0.8% up marginally to about 1.0%.
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Prof Raymond Parsons, NWU Business School economist, says the GDP growth of 0.4% could represent a turning point in South Africa’s business cycle, as the country’s economic growth performance has clearly been too low for too long.
“The weak growth performance confirms the top priority now given to inclusive job-rich growth by the Government of National Unity (GNU). The numbers also confirm the extensive damage to South Africa’s economic growth that Eskom’s previous load shedding, in particular, did earlier in terms of widespread disruption, heavy costs and debilitating economic uncertainty.
“As load-shedding recently receded, business and consumer confidence recovered to better levels. The GDP growth figures for the second quarter show that renewed energy security since March 2024 has helped the country’s growth performance to gradually cross an important threshold.”
However, he warns, the economy is not on cruise control, with gross fixed capital formation as well as exports remaining weak links. “Gross fixed capital formation, especially, is a major driver of future economic growth. Complacency must therefore be avoided, as salient risks to the growth outlook linger and there are still daunting socioeconomic challenges to be tackled.”
Parsons says therefore the GNU must still expedite key growth-friendly reforms, policies and projects in collaboration with the private sector to ensure putting the economy on a much higher and sustainable growth path.
“If South Africa plays its cards well from now on, it becomes possible to visualise the country’s real GDP growth broadly at 1% in 2024, improving to about 2% in 2025 and perhaps even reaching 3% by 2026.”
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Crystal Huntley, Johannes Khosa and Nicky Weimar, economists at the Nedbank Group Economic Unit, said the GDP numbers confirm that the worst of the economic downturn is probably behind us. “We expect the recovery to gain moderate traction over the final stretch of the year before strengthening and broadening throughout 2025 and 2026.
“The boost will likely come from continued improvements in consumer demand as inflation falls further and interest rates start to decline, bolstering real incomes and lowering borrowing costs. Households are also widely expected to take advantage of the new two-pot retirement system, which allows them to access a portion of their contractional savings.”
They point out that many analysts expect these funds to supercharge the evolving recovery in consumer spending. “While some of these funds will likely be diverted to spending, a significant share will be used to repay debt and restore financial health. Nonetheless, we expect the recovery in consumer spending to gather pace, supporting the broader services sector.”
With the general election out of the way, the government will likely curtail spending more aggressively in the quarters ahead to meet its deficit and debt reduction targets, they say. “Therefore, we foresee slower growth in government spending in the second half of the year.
“The drag from weak fixed investment activity will persist for longer. Given subdued global demand, lower commodity prices and ample spare capacity in most industries, private firms are unlikely to expand operations until the economic recovery gains sufficient momentum to place some pressure on existing capacity.”
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On top of these considerations, the energy and logistics disruptions of the past two years have reduced sales and inflated operating costs, eroding profitability in most industries. They say at this point in the cycle, the private sector is more likely to focus on restoring profitability through cutting costs and extracting efficiencies than embarking on major expansionary projects.
“Fixed investment is expected to turn the corner early next year, driven by a revival in renewable energy projects, a more supportive international and domestic business cycle and further improvements in structural reforms.
“Net exports will remain negative, constraining GDP growth. Exporters will struggle to lift volumes substantially as logistics have not improved sufficiently to handle a significant surge in cargo. At the same time, imports will likely be propped up by the recovery in consumer demand, although the upside will be limited by weak fixed investment.”
Altogether, they still forecast GDP growth of around 0.9% in 2024, followed by faster growth of 1.5% in 2025 and 1.6% in 2026.
ALSO READ: GDP contraction in first quarter opens door for economic recession
Thanda Sithole, senior economist at FNB, says this GDP outcome does not alter FNB’s headline growth projections. “We maintain our forecast of 1.0% real GDP growth for this year, with an expected increase to 1.8% in 2025 and 1.9% in 2026.
“These projections are supported by easing energy constraints, moderating inflation, the anticipated shift towards easier but still restrictive monetary policy, the introduction of the two-pot retirement system and a stable global growth environment.
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