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South African economy to slow down this year before stabilising in 2024

30th October 2023

By: Darren Parker

Creamer Media Contributing Editor Online

     

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South Africa's economic growth is projected to decelerate from 1.9% in 2022 to 0.4% this year, before picking up to 1.3% in 2024, according to data and analytics company GlobalData. 

This comes as the South African economy grapples with several challenges, including severe power disruptions, unstable commodity prices, a high unemployment rate and a variety of external issues.  

GlobalData’s recently published ‘Macroeconomic Outlook Report: South Africa’ underscores the ongoing concern of a notably high unemployment rate that is significantly affecting domestic demand conditions. The unemployment rate, which maintained an average of 33.9% in 2021 and 2022, is expected to widen to an average of 34.7% for 2023 and 2024. 

Moreover, the youth unemployment rate in the country stayed above 60% from the beginning of this year until July.  

Further, real household consumption expenditure, which exhibited an average yearly growth rate of 3.9% in 2021 and 2022, is expected to decelerate to an average of 0.9% in 2023 and 2024. 

Meanwhile, Statistics South Africa’s data reveals that, in the second quarter, the South African economy experienced significant year-on-year growth, reaching 1.6%. This expansion was notably higher than the modest 0.2% increase observed in the previous quarter and marked the strongest growth seen since the third quarter of 2022.  

GlobalData says this improved economic performance can be linked, at least in part, to a reduction in power outages and a reduced dependence on State-owned power utility Eskom for electricity demand in sectors such as manufacturing and mining. 

“Looking at the positive aspects, the inflation rate has been on a downward trajectory since March, stabilising at 4.8% in August, falling within the central bank's target range of 3% to 6%. This has had a slight uplifting effect on consumer sentiment, leading to a four-month consecutive rise in the consumer confidence index, extending up to September.  

“Business confidence has also seen continuous improvement, climbing from 98.6 in June to 99 in September. These gradual improvements in macroeconomic indicators offer a glimmer of hope for a more favourable economic outlook for South Africa in 2024,” GlobalData economic research analyst Puja Tiwari says. 

GlobalData estimates reveal that mining, manufacturing and utilities contributed 24.8% to South Africa’s gross value added (GVA) in 2022, followed by financial intermediation, real estate and business activities at 23.7%, as well as wholesale, retail and hotels business activities at 13.5%.  

In nominal terms, these three sectors are forecast to grow this year by 5.4%, 5% and 5%, respectively, compared with a growth rate of 6.9%, 6.2% and 6.5%, respectively, in 2022.   

In April, the Department of Public Works and Infrastructure unveiled plans for the country's public sector to allocate R903-billion towards infrastructure projects, expected to stimulate growth in the construction and related sectors. According to GlobalData's projections, the construction sector's GVA is expected to experience an average yearly growth rate of 5.5% between now and 2025. 

GlobalData also noted that South Africa's economy heavily depends on the export of commodities, including minerals, coal, iron-ore, agricultural products and diamonds, leaving it susceptible to global price fluctuations and demand variations.  

Given the uncertainties in commodity prices and weaker international demand this year, the country’s trade prospects are expected to be adversely affected. According to International Monetary Fund forecasts, South Africa is projected to experience a slower export growth rate this year at about 3.6%, compared to 7.4% growth last year. 

In terms of risk, South Africa is categorised as one of the manageable-risk nations and ranked sixty-ninth out of 153 nations in GlobalData Country Risk Index for the second quarter. The country’s risk score on various parameters, namely macroeconomic, demographic and social structure, technology and infrastructure, and environment was higher than the risk score of the rest of the world in the second quarter.  

“Given the energy crisis and the uncertain commodity price environment, South Africa's economic growth confronts substantial hurdles. To address these concerns and invigorate the economy, the government should emphasise investments in renewable energy, promote diversification of resources, and champion innovation to bolster economic resilience and long-term sustainability,” Tiwari says. 

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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