South Africa falling behind 

South Africa has been unable to keep pace with other emerging markets and developing economies (EMDEs) after the Covid-19 pandemic, shown by the country’s lacklustre economic growth.

The International Monetary Fund (IMF) recently released its World Economic Outlook, which painted a discouraging picture of the South African economy.

The IMF revised its outlook for South Africa’s economic growth downward. It predicts only 0.9% GDP growth in 2024 and 1.2% growth in 2025.

This is far below the average projected growth for EMDEs, and the IMF said this disparity will only widen further, with South Africa’s slow growth expected to continue over the next four years.

South Africa’s economy grew by only 0.6% in 2023, the lowest since 2020 during the Covid-19 pandemic.

While many believe the economy will be stronger this year, growth still appears to be capped at around 1%.

South African Reserve Bank (SARB) Governor Lesetja Kganyago recently told CNBC that South Africa’s economy is growing extremely slowly despite increased output, pointing to structural problems holding the country back.

He said South Africa’s economy only grew by 0.6% last year despite closing the output gap. “What that tells us is that the problems of this growth are structural in nature,” he said.

According to the SARB’s forecasts, South Africa’s economic growth is set to average just over 1% over the next two years.

“Clearly, the structural changes need to be implemented to get this economy growing again,” the Governor said.

He explained that South Africa’s economy needs to raise its potential growth rate to see meaningful improvements in the future.

The SARB predicts 1.2% GDP growth for South Africa in 2024 and has pointed to supply-side problems being the reason for the country’s low growth in 2023. 

In its March Monetary Policy Statement, the SARB said electricity load-shedding was worse than in previous years. Port and rail problems also emerged as binding constraints on output.

“Our forecasts indicate a modest growth acceleration from this year as these supply-side constraints relax,” the SARB said. 

“In particular, we expect the load-shedding burden will ease somewhat. While we estimate electricity shortages took 1.5 percentage points off GDP last year, we think this will moderate to 0.6 percentage points this year and 0.2 percentage points in 2025.”

The SARB estimates that electricity shortages took 1.5 percentage points off GDP last year. It expects this to moderate to 0.6 percentage points this year and 0.2 percentage points in 2025.

“Overall, we see growth at 1.2% this year, improving to 1.6% by 2026. These projections are better than the 2023 outcome but below longer-run averages, which are around 2%.”