Reserve Bank expects below-average growth for South Africa in 2024

The South African Reserve Bank (SARB) expects the local economy to grow below its average annual rate for the past four decades in 2024, with it expanding only 1.2%.

This was revealed by the SARB’s Monetary Policy Committee (MPC) in its statement earlier today, which voted to keep interest rate hikes unchanged for the fifth consecutive meeting. 

This decision means the repo rate will remain at 8.25% while the prime lending rate stands at 11.75%. The decision was unanimous, as all five members of the MPC preferred to keep the rate on hold.

In its statement, the MPC also outlines its growth expectations for the South African economy for the next two years. 

It left its expectations unchanged for 2024, with an expected growth rate of only 1.2%, which will increase to 1.6% in 2025. 

“These projections are better than the 2023 outcome but below longer-run averages, which are around 2%,” the MPC said. 

According to the IMF, South Africa’s economy averaged 2.1% annual economic growth for the 42 years from 1980 to 2022. 

The expected poor growth in 2024 follows from the country’s economy expanding just 0.1% in the fourth quarter of 2023. Growth for the whole of 2023 was only 0.6%.

The main reason for this bad performance was supply-side problems, in particular load-shedding and the country’s inefficient logistics system. 

On a more positive note, the Reserve Bank expects the electricity supply to increase gradually over the long term due to the rapid uptake of alternative energy sources from the private sector. 

South Africa, being a small and very open economy, is highly vulnerable to changes in the global economic environment.

And so, weaker-than-expected global economic growth will also weigh on the performance of the local economy. 

The Reserve Bank expects global economic growth of only 2.6% in 2024, resulting in a minor uptick in demand for South Africa’s valuable mineral resources. 

SARB Governor Lesetja Kganyago cautioned that global economic conditions are deteriorating, and the outlook remains uncertain. 

This may lead to global shocks that negatively impact the South African economy and inflation. 

In most countries, reaching inflation targets, reducing fiscal deficits, and containing or lowering public debt levels will be key priorities. Thus, monetary and fiscal policies are expected to remain tight globally. 

Kganyago also warned that geopolitical tensions threaten supply chains, economic output, and prices, raising the possibility of a rise in global inflation. 

Nedbank expects the economy to grow at an even slower rate in 2024 despite increased private sector investment in the economy, primarily in the form of alternative energy sources.

Senior economist at Nedbank, Johannes Khosa, said South Africa’s economy would fail to grow more than 1% in 2024 due to its structural economic challenges.

This is simply not good enough for South Africa and is well below its population growth, meaning that South Africans are getting poorer over time.

Underlying trading conditions, despite improved electricity supply, “remain highly unfavourable, and the economy still faces significant headwinds in 2024”, Khosa said.

South Africa’s moderate growth may even result in an increase in unemployment in 2024, reducing the chances of an increase in consumer spending – further weakening the economy.

Nedbank expects private sector investment to be propped up by continued spending on renewable energy and backup generation.

This will not be at sufficient levels to overcome the country’s structural challenges, of which the logistics crisis is now taking centre stage.

Worryingly, the weakness of the economy has become more broad-based as ky producers reduced output substantially and drew down their inventories to sustain exports.