Bank of America expects South Africa’s economic growth to triple to 1.5% in 2024 from a paltry 0.5% in 2023.
Sub-Saharan Africa economist at Bank of America, Tatonga Rusike, told CNBC Africa that this growth rate is nothing special and not good enough for the country.
Rusike said 2024 will be a very tumultuous year for South Africa, with national elections, interest cuts expected in the second half, and deteriorating public finances.
South Africa’s economy performed poorly in 2023, predominantly due to record load-shedding. Bank of America expects this to improve.
“Our starting assumption for the year is that South Africa will have fewer power cuts as Kusile’s units come back online and households and corporates continue their uptake of rooftop solar,” Rusike said.
This will make the economy more resilient and somewhat immune to load-shedding, attracting investment to the country.
Another factor in South Africa’s improved economic growth will be the Reserve Bank cutting interest rates in the second half of the year.
Rusike said that rate cuts will likely boost consumer spending and consumption, resulting in economic growth.
Bank of America also expects foreign investment to pick up in South Africa once the Federal Reserve cuts interest in the US.
Rate cuts in the US will increase investors’ risk appetite, which will benefit emerging markets, including South Africa.
However, Rusike said rate cuts in the US will not result in foreign investors committing capital to long-term projects in the country as local structural issues will still deter them.
“I must also say that an improvement to 1.5% economic growth is positive, but it is not special and is roughly equal to South Africa’s population growth. In per capita terms, the economy will be stagnant,” he said.
Bank of America’s expectations for economic growth are not dissimilar to those of the Reserve Bank, which sees the economy growing 1.2% in 2024.
The Reserve Bank said the deterioration in the performance of its ports and rail has seriously constrained the local economy.
Transnet’s failures and lengthy periods of load-shedding contributed to weak economic growth in 2023 and higher inflation throughout the year.
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.