The past week brought nothing to celebrate for the South African economy, with GDP for 2024 ending the year on a disappointing 0.6%.
On the economic front, the week was full of disappointments, with the gross domestic product (GDP) for the fourth quarter showing only a slight improvement, while the rand picked up its head again and performed better than a week ago.
Lisette IJssel de Schepper, chief economist at the Bureau for Economic Research (BER), says from a GDP growth perspective, while the economy rebounded from the 0.1% quarterly contraction in the third quarter, the 0.6% recorded in the fourth quarter is hardly something to celebrate.
“The fact that the annual economic growth rate slowed to 0.6% from 0.7% in 2023 is bleak. Unfortunately, the RMB/BER Business Confidence Index (BCI) for the first quarter does not point to a strong further recovery, with sentiment unchanged at 45 index points.
“On the bright side, local vehicle sales did well in February, but exports slumped. This does not bode well for the current account for the first quarter, which stayed in deficit in the fourth quarter, although coming in smaller than expected.”
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Rand, oil and gold
Isaac Matshego and Busisiwe Nkonki, economists at the Nedbank Group Economic Unit, say the rand was trading around R18.09/$ on Friday morning, up by 3.2% since Friday last week and its highest level since 17 December 2024.
“The local unit gained from broad-based US dollar weakness, benefiting emerging market currencies.” The Rand fell back a bit by Friday afternoon to trade at R18.21/dollar.
In commodity markets, the Brent crude oil price dropped below $70 a barrel on Wednesday as it touched the lowest level since December 2021, Matshego and Nkonki say.
“OPEC+ announced that it would proceed with its planned output boost in April, raising the group’s total output by about 138 000 barrels a day. Additionally, worries about the impact of the US trade war on global demand weighed on oil prices.”
The gold price eased slightly to $2 904.62 an ounce, still near its record high.
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Underwhelming GDP growth not good news for SA
According to Statistics SA, the real GDP growth accelerated to 0.6% in the fourth quarter compared to the third quarter, below consensus expectations, pulling full-year growth down to 0.6%, slightly lower than the 0.7% recorded in 2023.
Katrien Smuts, economist at the BER, says as expected, lower inflation, interest rate cuts and the two-pot retirement withdrawals supported consumer-linked industries but these gains were not enough to offset contractions in other sectors.
Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, economists at FNB, say as anticipated, retrospective revisions to the first three quarters of 2024 data were evident in the agriculture, forestry and fishing GDP.
“However, even with these adjustments, overall GDP growth remained subdued at 0.6% in 2024, down from 0.7% in 2023, reflecting contractions in six out of ten sectors. The largest decline (-8.0%) was recorded in the drought-affected agriculture, forestry, and fishing sector. Excluding this sector, the economy would have expanded by 0.8% in 2024.”
Matshego and Nkonki point out that better performances in field crops, livestock and horticulture supported agriculture, while lower inflation and interest rates supported the tertiary sector. On the expenditure front, the uptick came from a modest improvement in gross domestic expenditure (GDE), while net exports made no contribution.
Household consumption expenditure outweighed shrinking government consumption expenditure (GCE) and gross fixed capital formation (GFCF). They expect the economy to gain moderate momentum throughout 2025.
“The boost will likely come from continued improvements in consumer demand as inflation remains subdued and interest rates ease a bit more, bolstering real incomes and lowering borrowing costs. We also expect a recovery in fixed investment boosted by increased outlays on infrastructure by the public sector.”
Altogether, they forecast GDP growth of around 1.4% in 2025 and 1.8% in 2026.
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Current account deficit narrows in fourth quarter as percentage of GDP
The South African Reserve Bank’s latest balance of payments data indicates that the current account deficit narrowed in the fourth quarter, narrowing as a percentage of GDP from (a revised) 0.8% in the third quarter to 0.4% in the fourth quarter. For the year as a whole, the current account deficit narrowed from 1.6% of GDP in 2023 to 0.6% of GDP in 2024.
Smuts says the primary driver behind the smaller current account shortfall in the fourth quarter was an improved trade surplus, which grew from R200.4 billion in the third quarter to R232.9 billion in the fourth quarter.
Matshego and Nkonki also point out that the current account deficit narrowed significantly in 2024, driven by a sizeable trade surplus. “We expect the trade surplus to narrow in 2025 as imports will likely outpace exports.
“Export volumes should improve on more reliable electricity supply, slightly smoother logistics and steady albeit uninspiring global demand. Gold export volumes and prices should remain robust, given the increasingly uncertain geopolitical landscape.”
They also expect imports to be propped up by stronger consumer spending and a modest recovery in fixed investment. “The non-trade deficit will persist as income payments increase on firmer domestic growth. Service income will be supported by robust tourist arrivals, while transfers will likely remain relatively steady. Overall, the current account deficit is forecast to widen slightly in 2025.”
Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano say the strength in gold prices and other commodities with an improvement in China’s economy, versus softer oil prices as supply rises, will be key to the terms of trade outlook.
“In addition, the unwinding of logistical constraints will be important for export growth. This will be pertinent as rising domestic demand increases the odds of stronger import growth over the medium term.”
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Business confidence steady, but sustained recovery needed
After three consecutive increases, the RMB/BER Business Confidence Index remained unchanged at 45 index points in the first quarter. While it was slightly above the long-term average of 43 and well above early 2024 levels, it is concerning that confidence declined in four of the five sectors, Smuts says.
“The exception was new vehicle dealers, where confidence surged by 29 points, fully offsetting declines in all other sectors, despite the composite activity indicator remaining at an elevated level and even ticking up slightly.
“Encouragingly, many respondents are fairly optimistic about the next quarter. However, for confidence to rise meaningfully, we need to see a sustained recovery in demand and activity or firm progress on the structural reform front.”
Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano say while overall activity is improving, this survey outcome highlights the pressing need for progress on structural reform and policy certainty. “This is especially in the context of heightened global policy uncertainty as well as local pressures such as the potential for more disinvestment by large businesses and fiscal consolidation that may require tax measures that will weigh on demand and sentiment.”
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PMI contracts, but new car sales upbeat
The Absa PMI (purchasing managers’ index) edged down by 0.6 points to 44.7 in February, while the S&P Global PMI ticked up from 47.7 to 49.0.
Smuts says despite the improvement in the S&P PMI, both indices remain below the neutral 50 mark, signalling continued contraction in the manufacturing sector. “Key underlying components worsened, with new orders and employment declining in both surveys. Business activity, often linked to new business inflows, also slowed in February.
“Additionally, survey respondents highlighted concerns over escalating SA-US tensions, which are weighing on business sentiment.”
As the only star in a dull week, new vehicle sales were up 7.3% in February compared to a year ago, moderating in line with market forecasts from 10.4% in January.
Smuts says the acceleration in sales reflects several supporting factors, including easing (domestic) inflation, some interest rate cuts, improved consumer sentiment and a boost in disposable income following the implementation of the two-pot pension withdrawal system in September last year.
“By contrast, vehicle export sales remained under pressure, contracting 8.6% to 34 656 units in February. The decline comes amid heightened global trade uncertainty and weaker demand from key trading partners.”
Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano point out that rising input costs, influenced by a weaker rand and higher oil prices, further pressured the sector, leading to increased purchasing prices in February.
“Compounding these challenges, concerns about global trade uncertainties, particularly regarding SA-US relations and possibly the resurgence of load shedding, contributed to a pessimistic outlook for future business conditions, with the index tracking expected business conditions in six months’ time decreasing further by 4.4 points to 60.5 in February.
