South African economic growth for 2024 at 1.0% year on year (y/y) was likely double that of 2023, but still weak overall, with three 25 basis points interest rate cuts likely by the SA Reserve Bank (SARB) in the second half of 2024, according to Annabel Bishop, the chief economist at Investec.
Bishop said this yesterday in a note detailing her macro-economic outlook for this year.
She said 2023’s growth was likely 0.5% y/y.
This year was expected to see the start of an interest rate cutting cycle, as well as lower inflation on average, and improvements to infrastructure.
Economic growth would be lifted by a reduction, to planned eventual elimination, of congestion at the ports.
However, Bishop said electricity supply was not expected to fully, and consistently, meet demand this year, and higher stages of load shedding were likely.
"That is, load shedding is likely to persist through 2024, at risk of worsening from stage 3/4 as insufficient capacity comes online, but 2025 should see more capacity from private sector generation, with further build-up over subsequent years,“ she added.
International direction
Global economic growth was expected to provide some support to the South African economy, with the OECD highlighting the likelihood of only a mild slowdown in growth in 2024, to 2.7% y/y, versus 2.9% y/y in 2023, and so not a recession and lifting to 3.0% y/y in 2025.
Domestic markets
Bishop said financial markets’ appetite for risk taking increased into the end of 2023, and the rand strengthened to R18.30 against the dollar, with the JSE gaining close to 12% from early November, but both have since weakened somewhat on market jitters this year to date.
Domestically sentiment concerns also centred around the nature of the coalition government after the national elections, likely in quarter two 2024, which was also dulling business confidence, while uncertainties over the global environment persist, adding to volatility.
“The elevation in South Africa’s CPI inflation rate around the turn of Q3.23, into Q4.23, proved temporary as expected, dropping from 5.9% y/y in October, to 5.5% y/y in November, and will likely fall to near 5.2% y/y in December’s outcome,” she said.
Bishop said downward pressure from fuel price cuts aided South Africa’s inflation lower towards the end of last year, as did rand strength for other commodities’ prices, as well as base effects. January, however, would likely see a start of year kick up in inflationary pressure.
"However, January’s temporary lift will not necessitate higher interest rates, and instead, interest rate cuts are expected this year, although the MPC (Monetary Policy Committee) will most likely wait until CPI inflation runs around or below, 4.5%, which currently is only likely in H2.24,“ she said.
She said CPI inflation in South Africa was likely to reach 4.5% y/y in July this year, then drop below 4.0% y/y temporarily, which would most likely provide the environment, which the SARB would look for to cut its repo rate.
"However, the SARB may decide to cut interest rates ahead of time if it feels confident that its forecast has a high probability of CPI inflation averaging at, or below, 4.5% y/y in H2.24. It is too early to tell with 100% certainty if this will be the case yet,“ she said.
She said interest rate cuts would bolster Household Consumption Expenditure growth, with the latest Eighty20 Credit Stress Report for 2023 Q3 showing “(t)he rate of new defaults (RND) is … up 25% from 2.01% a year ago” in South Africa“.
Bishop said no further interest rate hikes were expected in South Africa, but high interest rates, and consumer stress, had seen growth in bank lending slow, and lending conditions had seen a marked tightening.
Downside risks to the economic outlook particularly came from an increased left leaning stance in government after the elections, with such municipal coalitions already having seen deteriorating service delivery, and provided an anti-business, and so growth, stance, she said.
"A dampening of economic growth this year would also come from higher taxation and failure to cut back wasteful, needless and inefficient expenditure and root out corruption. Left-wing governments are ranked as having higher corruption levels than centrist ones (Corruption Perception Index),“ she said.
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