South Africa: Treasury Optimistic About Economic Outlook

National Treasury expects improved growth prospects for the South African economy, despite slowing projected growth of some 1.1% in 2024 – down from the projected 1.3% earlier this year.

Real Gross Domestic Product (GDP) growth is projected to improve at some 1.1% in 2024, up from the 0.7% in 2023.

In its Medium-Term Budget Policy Statement (MTBPS), National Treasury said economic growth was being “weighed down by stop-start economic growth and stubborn inflation in the first half of the year”.

“The economy has since strengthened in response to the suspension of power cuts since March 2024, improved confidence following the formation of the Government of National Unity in June, better than expected inflation outcomes in recent months and reduced borrowing costs. All these factors are expected to continue supporting the economy over the period ahead.

“The pace of [GDP] growth is still being limited by persistent – though gradually easing – constraints, particularly in logistics infrastructure. Faster growth depends largely on maintaining macroeconomic stability, the continued implementation of structural economic reforms, improving State capabilities and supporting higher infrastructure investment,” the MTBPS stated.

Treasury explained that although risks persist, global risks are “weighted to the downside, while risks to the domestic outlook appear more balanced compared with the 2024 Budget Review assessment”.

“Global growth may weaken due to financial market volatility, tightening conditions for developing economies, slower disinflation from rising commodity prices and a prolonged contraction in China’s property sector. On the domestic front, food prices are vulnerable to weather-related shocks and logistical challenges.

“Positive domestic risks include the possibility of a quicker pace of disinflation and interest rate reductions than assumed in the baseline forecast, which would boost demand. Stable electricity supply and faster progress on reforms could boost business and consumer confidence,” Treasury said.

The department warned, however, that fiscal risks “remain significant though somewhat more balanced than a year ago” and that the materialisation of these risks could be a threat to “fiscal projections, with negative consequences for investment and economic growth”.

“Despite the downward revision to growth for the current year, there is cautious optimism for the medium-term outlook as the early benefits of reform implementation continue to materialise.

“The stabilisation of electricity supply has improved the overall investment climate. This positive momentum will be sustained by a new phase of Operation Vulindlela, which aims to accelerate structural reforms implementation.

“To support these efforts, it will be essential to maintain clear and stable macroeconomic policies while strengthening state capability and supporting investment in growth-enhancing public infrastructure,” the MTBPS stated.

Global outlook

On the international front, global growth is projected to slow marginally from 3.3% in 2023 to 3.2% in 2024 and 2025.

“Slowing inflation has opened the way for major central banks to ease monetary policy. Lower interest rates and strong investment in technology, particularly in emerging Asia, are expected to support growth,” Treasury said.

The department added that overall risks to growth are “to the downside”.

“Fiscal policy has begun to contract in some countries, in part to manage the rapid increase in sovereign debt levels since the COVID-19 pandemic, and some countries are in debt distress.

“Persistent geopolitical tensions continue to flare, with potentially far-reaching effects on global trade, and the threat of escalating conflict in the Middle East remains a concern. The years-long downturn in China’s property sector, notwithstanding new stimulus support, could continue to weaken Chinese growth,” the MTBPS stated.

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Economic growth in advanced economies is forecast to reach some 1.8% in the same period with growth in emerging and developing economies – including South Africa’s BRICS partners – projected at 4.2%.

In Sub-Saharan Africa, this is projected at 3.6% in 2024 and 4.2% in 2025.

“Global equity prices have risen as inflation decelerates, accompanied by interest rate cuts that are expected to continue into 2025. Further declines in bond yields are consequently anticipated, creating a favourable environment for emerging market assets.

“Declining production and shipping of commodities, particularly oil, has dampened the outlook for some emerging and developing economies, including in Sub-Saharan Africa. Oil prices are anticipated to fall slightly in 2024, given weak global demand, despite production cuts agreed by major producers.

“Global food prices are also projected to fall, supported by record-high grain production, reducing inflationary pressures,” the MTBPS explained.

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