Hidden force set to boost South Africa’s economy

Strong economic growth in India and China is expected to boost demand for South Africa’s commodity exports, supporting the local currency’s value and the broader economy. 

Much focus has recently been placed on the impact of various political developments on South Africa, from the US election to moments of elevated tension among members of the Government of National Unity (GNU). 

While these developments do impact the local currency, the economic performance of South Africa’s major trading partners also significantly impacts the rand’s value. 

“South Africa’s economic fortunes are intertwined with the rest of the world. While domestic factors directly impact the country’s economic outlook, so does the economic health of its trade partners,” PwC chief economist Lullu Krugel said. 

In its latest economic outlook for South Africa, PwC focused on the country’s trading partners and how their economic performance could impact the local economy. 

The performance of China is important as it is South Africa’s largest trading partner and provides valuable foreign exchange earnings for the country. 

While its economic growth has dropped off in recent years after an exceptional thirty years, its overall performance is still strong. 

The country is expected to grow 4.8% in 2024 and 4.5% in 2025. This is below the Chinese government’s stated target of 5% growth but still impressive for a $17.8 trillion economy. 

Its slowing growth is largely due to ongoing structural reforms, weak consumer spending, and challenges related to overcapacity in the property market. 

Structural reforms aim to reduce debt reliance and stabilise the real estate market. However, these adjustments are expected to negatively affect short-term economic growth. 

While high-tech manufacturing continues to perform well, consumer spending and industrial output are weakening heading into 2025. 

China’s shift toward technology and domestic consumption supports long-term stability, but export-driven growth is threatened by global trade tensions, especially with Western nations. 

Continued growth from China is expected to drive demand for commodities, and as a large exporter of vital minerals, South Africa is expected to benefit from foreign currency earnings and economic growth.

These factors should support the rand throughout 2025. 

On the back of its stellar economic growth in recent years, India is becoming an increasingly important trading partner for South Africa. 

Similarly to China, India has a huge and growing appetite for commodities to be used in its factories and for the construction of local infrastructure. 

India has risen to become the world’s fifth-largest economy and is the fastest-growing major economy in the world. 

It is projected to grow by 6.8% in 2024 and 6.6% in 2025, driven by strong domestic demand and huge investment in key sectors. 

The economic growth outlook remains positive for next year due to current robust consumption, resilient investment, and stable government spending, which will continue into 2025. 

However, fixed investment is anticipated to remain moderate, with tight financial conditions weighing on investment decisions.

 Public spending on infrastructure is anticipated to increase in 2025 and attract private investment: the “Make in India” and supply chain diversification initiatives will likely attract more foreign investment next year, particularly as companies seek alternatives to Chinese goods.

South Africa’s largest emerging market trading partners will continue to see high levels of economic growth in 2025 compared to domestic trends.

Even though real GDP growth forecasts point to slower momentum next year, their growth rates signal a continued strong demand for goods and services produced in South Africa for export to these Asian giants. 

For South African companies, the opportunities are tied to the hunger for commodities to feed, clothe, transport, etc., a combined 2.9 billion people in the two countries. 

Both economies also have a ferocious appetite for commodities used in their massive manufacturing industries, including minerals, metals and agricultural products. 

Under the banner of an expanded BRICS grouping, China and India remain the largest prizes for companies in other emerging markets seeking to expand their footprint. 

While entering these markets could be challenging due to differences in regulation, culture and the treatment of intellectual property rights, a positive political relationship under the BRICS organisation is a supportive factor.