Higher salaries and lower interest rates for South Africa

PwC South Africa said citizens can expect lower inflation, interest rate cuts and rising salaries this year as the economy starts to improve. However, it’s not all good news for South Africa’s economy.

PwC’s South Africa Economic Outlook for January 2025 revealed a generally positive outlook for the country’s economy this year.

PwC South Africa’s leader for consumer and industrial products and services, Nqaba Ndiweni, said the 2025 consumer outlook is notably better than last year.

South Africans can expect lower inflation, interest rate cuts and rising salaries this year, which spells good news for the overall economy.

This is because all of those factors will result in more money in South Africans’ pockets, boosting household spending, which accounts for more than 60% of the country’s GDP.” 

“For consumer-facing companies, it signals some improvement in customer spending power alongside some positive trends in consumer confidence after several years of more constrained household budget conditions,” he said.

Therefore, things are looking up for South Africa in 2025, particularly compared to the lacklustre growth the country saw in 2024.

PwC explained that, after disappointing GDP data for the third quarter of 2024, the economy expanded by only 0.4% in the first three quarters of last year. The firm expects a full-year growth rate near that level for 2024. 

However, the economy is expected to grow in 2025, with PwC forecasting economic growth of 0.5% in its downside scenario and 1.3% on the upside.

The firm explained that this wide range of projections reflects the many uncertainties for the year ahead.

“However, while these improved economic conditions will undoubtedly contribute to job creation, we fear that – once again – economic growth in 2025 will not be enough to absorb all the new potential workers entering the labour force this year.” 

PwC expects the labour force – the number of people willing and able to work – to increase by 340,000 to 24.96 million people in 2025. 

However, with baseline economic growth projected at 0.8%, the firm’s model suggests that job gains this year will be a net of 115,000. 

As a result, the unemployment rate is expected to increase from 32.7% in 2024 to 33.2% in 2025. 

“This projection is premised on the long-term statistical relationship between economic and employment growth,” the firm explained. 

Between 2008 and 2024, jobs increased by an average of 0.86% for every 1% in real GDP growth.

Therefore, South Africa needs GDP growth of at least 2% to keep up with labour force growth and stop the ascent of the unemployment rate.

Beyond that, South Africa needs even more rapid growth of at least 3.5% per year to meaningfully impact the jobless rate by 2030.

Worse than it seems

The Reserve Bank’s most recent Quarterly Bulletin, released late last year, showed that South Africa’s unemployment crisis runs deeper than it appears.

The report showed that election-related factors skewed statistics in 2024 and obscured the true depth of the problem. 

It revealed that the mid-2024 improvement in employment figures was largely driven by temporary election-related jobs in the public sector. 

In preparation for the elections held in late May, the Independent Electoral Commission temporarily employed thousands of South Africans. 

The Reserve Bank said a significant portion of the 109,400 jobs added in the public sector during the period was election-related rather than a true reflection of economic growth. 

Excluding election-driven employment, public sector job creation amounted to just 13,400 for the quarter. 

Employment rose across most public sector areas, except for state-owned enterprises in transport, storage, and communication services. 

The Reserve Bank noted that the most significant gains were in other public sector enterprises, attributed to the surge in election-related job opportunities. 

However, a more troubling trend emerged in the private sector, which employs more than three times as many people as the public sector. 

Ongoing challenges, particularly sluggish economic growth and logistics constraints, resulted in further job losses in this critical segment of the economy. 

According to South Africa’s most recent expanded unemployment rate, which includes discouraged work seekers, South Africa has an unemployment rate of 41.9%.

Youth unemployment in South Africa is a particularly pressing issue, and many organisations say it spells trouble for the country.

61% of South Africans between the ages of 15 and 24 are unemployed, and 42% of those between 25 and 34.

Academics highlighted that slow economic growth, regulatory burdens, wage bargaining issues, and lack of experience exacerbate the situation.

They said the structural nature of unemployment in the country is a significant hurdle to getting jobs for millions of young South Africans.

These problems include supply-side challenges, such as poor-quality education and limited entrepreneurial education.

Adverse social conditions, such as teenage pregnancy and substance abuse, also severely hinder young people’s ability to secure and maintain employment.

On the demand side, the economy’s sluggish growth and limited entrepreneurial activity result in insufficient job opportunities for young job seekers.

Moreover, market misalignments, including a mismatch between youths’ skills and available job opportunities, further complicate the situation.