While inflation decreased and the repo rate was cut twice in 2024, the rand, GDP and unemployment still show that the economy is struggling.
Although many people had high hopes for the South African economy in 2024, the country’s GDP did not increase as everybody hoped, while unemployment remained high and the rand continued its volatility.
South Africa’s economic landscape was bleak for the better part of a decade, Bianca Botes, director at Citadel Global, says. “Gross Domestic Product (GDP) growth averaged less than 1% per year, plagued by logistical challenges, crime, corruption and gross mismanagement.
“The energy crisis eroded investor confidence and the political scene was equally troubling, leading to a loss of public trust. However, the formation of the government of national unity (GNU) has so far exceeded expectations and offers some hope.”
She says reforms that offer hope include stabilisation of the energy supply, fiscal reform and discipline, greater private sector collaboration efforts from the government and an apparent surge in investment.
“These developments could mark the beginning of a sustained period of growth for South Africa. If the GNU can maintain cohesion and implement necessary reforms, the country could see a significant improvement in its economic performance over the coming years.”
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GDP just cannot get off the ground
South Africa’s GDP decreased in the first quarter of 2024 as economists expected, with six industries recording negative growth between the fourth quarter of 2023 and the first quarter of 2024, including manufacturing, mining, construction and agriculture.
In addition, household final consumption expenditure dropped, with decreases reported for durable goods, semi-durable goods and services.
In the second quarter GDP increased by 0.3%, with six of the 10 manufacturing divisions reporting positive growth in finance, real estate, business services and manufacturing. However, the transport, storage and communication industries decreased.
Household final consumption expenditure increased in the second quarter, with the highest growth rates reported for services and semi-durable goods. The main positive contributors to the increase in household final consumption expenditure were spending on the ‘other’ category, clothing and footwear and food and non-alcoholic beverages.
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Shocking decrease in GDP in third quarter
In the third quarter GDP decreased by 0.3%, despite positive signs of economic growth that led economists to expect the economy to grow by up to 0.5%. The drop was driven by the agriculture, forestry and fishing industry decreasing by 28.8%, primarily due to decreased economic activities reported for field crops.
Transport, storage and communication industry decreased, while decreased economic activities were also reported for land transport and transport support services. The trade, catering and accommodation industry decreased by 0.4%, with decreased economic activities reported for wholesale trade, motor trade and food and beverages. Increases were noted in the finance, real estate and business services industry.
Household final consumption expenditure increased by 0.5%, with the highest growth rates reported for non-durable and semidurable goods. The main positive contributors to the increase were spending on food and non-alcoholic beverages housing, water, electricity, gas and other fuels, recreation and culture and restaurants and hotels.
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Volatile rand brought hope, then disappointed
The rand continued its volatility, starting the year on R18.44/dollar on 1 January, increasing to a high of R19.31 on 23 February, before decreasing after the election and the formation of the government of national unity (GNU), reaching a low of R17.17 on 28 September before erasing its gains over the year to trade at R18.73 on 30 December.
Annabel Bishop, chief economist at Investec, said at the beginning of the year that the most probable outcome for the rand was to end the year averaging between R18.17 and R19.09. The rand is now on track for its worst December performance since 2015 and its biggest quarterly decline in more than two years.
The local currency effectively erased all its 2024 gains and is now hovering around its weakest level since the election in May.
This graph from Moneyweb’s website illustrates the volatility of the rand in 2024:
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Rand was expected to end year between R17.80 and R18.30/dollar
However, Botes said earlier that the rand is expected to perform well for the rest of the year, with estimates for the currency to end the year between R17.80 and R18.30/dollar.
“The relatively strong rand-to-dollar exchange rate range we foresee for the end of 2024 depends on certain variables and assumptions used but we believe there is room for the rand to gain even more ground to end off the year much stronger than these levels if a few things work in the favour of the emerging market of currencies.”
Botes says the formation of the GNU was seen as positive by market participants and assisted in the unwinding of some risk priced into the rand. She pointed out that the currency’s relative strength cannot be attributed only to South African factors.
“We must still see if the current state of electricity can be sustained, that logistical matters, such as Transnet can be resolved and that further reforms can create a business-friendly environment to stimulate growth and employment.”
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Unemployment remains high
Unemployment in South Africa was underscored by weak economic activity in 20245, with one in three people unemployed.
In the first quarter of 2024 unemployment increased again from 32.1% in the fourth quarter of 2023 to 32.9%. According to the results of the Quarterly Labour Force Survey for the first quarter, the number of employed people increased by 22 000 to 16.7 million in the first quarter compared to the fourth quarter.
However, the official unemployment rate increased again in the second quarter by 0.6% to 33.5% after a decrease of 92 000 in the number of employed people to 16.7 million, while there was an increase of 158 000 in the number of unemployed people to 8.4 million.
Fewer jobs
Employment statistics for the third quarter of 2024 show that there were fewer jobs in the third quarter of 2024 than in the third quarter of 2023. Total employment decreased by 133 000 compared to the second quarter from 10 738 000 jobs in June 2024 to 10 605 000 in September 2024, largely due to job losses in community services, business services, manufacturing, transport, mining and electricity.
Full-time employment decreased by 14 000 compared to the second quarter from 9 468 000 jobs in June 2024 to 9 454 000 in September 2024.
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SA economic growth over next three years?
Maarten Ackerman, chief economist at Citadel, says while interest rates and inflation are slowly coming down in South Africa and around the globe, a combination of forces is likely to keep economic growth below capacity for at least the next two to three years.
However, Ackerman says, there are some bright spots for the local economy that include the well-received formation of the GNU, improved energy security, lowering inflation and the strong recent performance of local equities, bonds and the rand, which boosted the country into the top three positions among its emerging market peer group.
“The country is now attempting to reverse 15 years of economic decline through a combination of policy implementation, port privatisation, improved mineral beneficiation and reformed trade policy. However, high interest rates and record-high unemployment rates must also be reversed, to boost South Africa’s consumer-based economy.”
