South Africa’s economy, long beleaguered by slow growth and structural challenges, is showing signs of a potential rebound. Following a decade of lackluster performance, experts are cautiously optimistic about the country’s economic prospects over the next few years.
The year 2023 saw a meager GDP growth of just 0.6%, barely enough to keep pace with the country’s population growth, which stands at approximately 1.5% annually. This disparity has led to a decline in GDP per capita, marking a worrying trend for an economy still reeling from the effects of the COVID-19 pandemic.
The start of 2024 was similarly bleak, with a 0.1% quarter-on-quarter decline in GDP. However, a stronger-than-expected energy supply in the second quarter is expected to prevent the economy from slipping into a technical recession, defined by two consecutive quarters of negative growth. Economists are forecasting a modest GDP growth of around 1.0% for the year.
Despite these challenges, the outlook for the medium term is more positive. The latest Bank of America Fund Manager Survey indicates that key reforms in South Africa’s railways, ports, electricity transmission, and skills development could drive GDP growth to between 2.0% and 2.5% over the next three years. This would represent the strongest growth in a decade, excluding the pandemic recovery year of 2021.
Domestic equities are also expected to perform well, with fund managers anticipating a 17% total return over the next year. Additionally, the South African Reserve Bank (SARB) is widely expected to cut interest rates in the third quarter of 2024, potentially boosting domestic asset classes and further stimulating economic activity.
The Bureau for Economic Research (BER) has projected a 2.2% GDP growth for 2025, driven by improvements in the country’s logistics infrastructure and the implementation of crucial economic reforms. The newly formed Government of National Unity (GNU), which includes the African National Congress (ANC) and eight other political parties, has pledged to accelerate these reforms, particularly in the struggling rail network sector.
Shannon Bold, a senior economist at the BER, noted that logistics disruptions are expected to be less of a constraint by 2025, leading to improved consumer and business sentiment. The National Treasury has also committed to stabilizing national debt and reducing debt service costs, which could further support economic growth.
Absa Bank has revised its 2025 GDP growth forecast upward from 1.7% to 2.0%, citing continued improvements in electricity supply and the GNU’s commitment to infrastructure reform as key drivers of private sector confidence and investment. However, the bank cautioned that challenges remain, particularly in logistics infrastructure and localized water shortages, which could pose risks to future growth.
In response to these water challenges, President Cyril Ramaphosa has signed the South African National Water Resources Infrastructure Agency SOC Ltd Bill, establishing a new agency to manage and develop the country’s national water infrastructure.
While significant hurdles remain, South Africa’s economy appears to be on the cusp of a recovery, buoyed by key reforms and a renewed commitment to addressing long-standing structural issues.
