South Africa’s economic growth will this year be supported by opportunities from the Two-Pot pension withdrawals, improved electricity supply and expected monetary policy easing by the central bank, however, there are uncertainties to the country’s status in the African Growth and Opportunity Act (AGOA).
This was said Standard Chartered in its latest report for South Africa and Africa outlook.
Economists and investors have warned though of some volatility ahead for South Africa as a result of US President Donald Trump’s “policy risk”, which may result in higher consumer inflation and a ramping up of monetary policy.
“Growth in 2025 is expected to be supported by improved electricity supply, two-pot pension withdrawals, and the South African Reserve Bank's (SARB) planned policy easing due to improved inflation,” said economists at Standard Chartered in the bank’s economic outlook report.
The bank has forecast a 2% growth trajectory for South Africa in 2025, which marks the first full year under the Government of National Unity (GNU). It’s much optimistic outlook compared to those between 1.3% and 1.8% for 2025 forecast by a variety of banks, ratings agencies, economists, the South African Reserve Bank (SARB) and the National Treasury.
There have been some upshoots of policy reform and stability under the GNU although the earlier optimism was seen by critics as starting to show fledgling signs, especially with inflation creeping back up and mining productivity slowing down in November.
Data from Statistics South Africa showed that inflation for food and non-alcoholic beverages rose slightly by 0.2% to 2.5% in December, up from 2.3% in November, much faster than the headline consumer price index (CPI).
With the SARB deciding on interest rates this week, attention will be on the monetary policy committee against the shadow of the uptick in inflation although many are still confident of a further rate reduction of at least 25 basis points this month.
Standard Chartered economists said: “The repo rate is expected to drop to 7.0% until inflation decreases. CPI inflation is projected at 3.5% in 2025 due to recent food and fuel price declines and modest services inflation.”
With South Africa managing to limit load shedding over the past few months in a much needed boost for local industry and mining sectors, there is likely to be intensified focus on renewable energy initiatives and related economic reforms to address structural challenges.
“The Two-Pot pension are expected to increase consumption,” said Standard Chartered. It added that in the first 10 weeks of the pension scheme, starting September 2024, withdrawal applications totalled nearly $2 billion (R37bn).
However, escalating global trade tensions remains a risk for South Africa’s outlook this year. The US, which is South Africa's second-largest trading partner, accounted for 7.5% of 2023 exports ($8.31bn), of which one-third have duty- and quota-free access under the AGOA.
This is now at risk should the US discontinue AGOA or make any amendments to South Africa’s preferential status. Trump is adopting an inward looking policy framework under which the world’s biggest economy will be prioritising its own growth and stability.
AGOA preferences, which are up for renewal this year, have been previously opposed by Trump.
Strong reform momentum in South Africa and Nigeria is seen helping sub-Saharan Africa to buffer against global uncertainties. In addition to South Africa’s energy and logistics reforms, Nigeria is implementing contentious fuel subsidy and foreign exchange liberalization reforms that could also lead to higher inflation.
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