This is what will shape SA’s economic outlook in 2024

South Africa’s economic outlook in 2024 will be shaped by global economic trends, geopolitical developments, domestic infrastructure challenges, effective implementation of government’s reform commitments and the national election.

Prof Raymond Parsons from the North-West University Business School says elections all over the world in 2024 will indeed put the spotlight on the global state of democracy, including in South Africa, with more than 40 elections involving over four billion people, covering almost half of the global population for the first time.

2024 Economic outlook: Global overview

“With interest rates staying higher for longer in many economies, it will for now still be painful for companies and consumers alike in several parts of the global economy. The Chinese economy is also expected to slow to about 4.5% over the next 12 months.”

Parsons also points out that geopolitical risks are expected to increase. The Houthi attacks on Red Sea shipping have raised global trade concerns, with heightened worries of supply chain instability.

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On a positive note: Inflation easing in SA

He says on the positive side there is increasing evidence that rates of inflation are easing in south Africa, with the consumer price index as well as the producer price index showing sharp declines in November.

“Inflation is now well within the south African Reserve Bank’s inflation target range of 3% to 6%. In November, the Monetary Policy Committee (MPC) decided for the third time to keep interest rates unchanged. Interest rates may well now have peaked in South Africa and barring shocks, borrowing costs may begin to ease later in 2024.”

Parsons says another welcome development in recent months was not just South Africa’s successful hosting of both the Brics and Agoa summits in Johannesburg, but also the extent to which these combined foreign trade events generated positive economic collaboration and business opportunities.

“In particular, it now appears that there is more certainty that a revised Agoa will be agreed by the US administration when the matter comes up for renewal in 2025, although there may still be some political resistance later from some circles in the US Congress. In addition, an enlarged Brics from 5 to 11 members will potentially have a bigger voice in global economic forums.”

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Economic outlook will remain tough and challenging in 2024

However, he points out, on the negative side, as 2024 arrives the economic outlook for South Africa will remain a tough and challenging environment.

“The economy will continue to grapple with domestic and global headwinds as it moves into 2024. In recent months contrary factors included the worse-than-expected negative gross domestic product (GDP) growth outcome of -0.2% for the third quarter, as well as intensified Eskom blackouts constraining the economy during the fourth quarter.”

Negative forces included a sharp contraction in household finances and in other high frequency data, such as retail sales and new vehicle sales, Parsons says.

“It now seems possible that the previous consensus GDP growth forecast of about 0.8% for 2023 as a whole may need to be revised downward, perhaps to about 0.6%.”

The recent flat performance of private fixed investment is also a matter of concern and raises a red flag, he says, as future growth and employment greatly depend on this.

“Sustained job-rich growth in South Africa needs rising total fixed investment, especially private fixed capital formation.”

Although there is welcome evidence of increased private investment in alternative sources of energy, total fixed investment remains at only about 15% of GDP, instead of closer to the 30% of GDP target by 2030 set by the National Development Plan if the economy is to reach much higher levels of job-rich growth, Parsons says.

“Another source of uncertainty for the economy has been the serious deterioration in South Africa’s public finances captured in the Medium-Term Budget Policy Statement (MTBPS) in November. Several of the serious risks facing the fiscal outlook acknowledged in the MTBPS must still be addressed in the main Budget in February.”

On the fiscal front the danger to be avoided is that the combination of weak growth, unfunded spending pressures or the emergence of contingent liabilities could increase borrowing costs and crowd out both private and public investment, Parsons warns.

He says the fiscal balance must be restored in the Budget without having to resort to unsustainable borrowing or damaging tax increases.

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Economic outlook not all bad news

However, Parsons says it is not all bad news or a dystopian outlook.

“Several of these risks have already been priced in’ by the markets and on the 2024 economic horizon there is also some good news to be anticipated. The normal rhythm of a fixed capital investment cycle can eventually be restored in South Africa if policy uncertainty is reduced in tandem with a stable macroeconomic framework.”

He expects lower rates of inflation and eventually lower interest rates in 2024, as well as modified levels of Eskom blackouts, which would help to give the economy much needed respite as it enters the new year.

“Furthermore, as fuel prices have been a major source of cost inflation over the past couple of years, petrol and diesel prices are anticipated to be lower, at least in the first quarter of 2024, compared to a year ago.

“This relief for business and consumers will help to reduce cost pressures in the early months of the year, as inflation gradually unwinds.”

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Twin challenge of Eskom and Transnet

But Eskom and Transnet will still be the two spots of negativity in 2024.

Parsons says Eskom load shedding remains the Achilles heel of the economy but there may now be positive developments on the load shedding front that could strengthen levels of energy security as 2024 unfolds if private power supply projects materialize as planned.

The Transnet bottlenecks had serious negative implications for South Africa’s foreign trade and global competitiveness and hopefully the Freight Logistics Roadmap will help to resolve the current rail and port crisis.

“In the near term, there must be a clear focus on addressing growth-limiting electricity and transport challenges. It now lies mainly in South Africa’s hands to use the right policies and projects immediately available to ensure that tailwinds will prevail over headwinds in determining the country’s economic performance in 2024.”