Stagflation warning for South Africa 

It is a positive sign that South Africa avoided a technical recession in the last quarter of 2024, but economic growth remains too weak to address the country’s severe inequality.

In addition, the country now risks stagflation if decisive policy action is not taken. Stagflation happens when an economy is concurrently stuck with slow growth, high unemployment, and rising prices (inflation).

Citadel chief economist Maarten Ackerman recently commented on South Africa’s fourth-quarter 2024 GDP data release.

This release revealed that South Africa’s economy grew by a modest 0.6% in the three months through December 2024.

While this is an improvement from the 0.1% contraction South Africa recorded in the prior quarter, Ackerman said it is still not enough.

“While South Africa managed to sidestep a technical recession, the reality is that growth remains too weak to meaningfully improve living standards,” he said. 

“Investment continues to decline, key productive sectors are struggling, and without decisive policy action, the country risks stagnation.” 

“We need sustained reforms and increased investment confidence to unlock long-term economic potential.”

He explained that the economy is not growing as fast as South Africa’s population, meaning that even though GDP has increased, GDP per capita continues to decline.

GDP per capita is the average amount of money each person in a country would get if the country’s total economic output (GDP) were divided equally among everyone.

Therefore, in South Africa’s case, the economy is growing, but citizens are becoming poorer in real terms.

However, Ackerman pointed out that South Africa’s GDP growth, which was 0.6% in 2024, is also not sustainable.

For example, the fourth quarter GDP data showed that agriculture was the main driver of growth in this three-month period.

The sector rebounded significantly in Q4, growing by 17% due to a base effect after the contraction in Q3 of 2024. 

However, Ackerman explained that agriculture remains a highly volatile sector, and while its strong performance in Q4 contributed nearly 50% of the quarter’s overall growth, it “does not reflect a sustainable driver of economic expansion”. 

Other contributors to economic activity in the fourth quarter included trade, catering, and accommodation, which benefited from a recovery in tourism, along with finance and real estate. 

“However, key productive sectors such as mining and manufacturing continued to decline, highlighting the uneven nature of economic growth,” Ackerman said.

One positive point he highlighted was that, despite high unemployment rates, inflationary pressures, and interest rates remaining elevated, consumer spending increased for the third consecutive quarter in Q4. 

“Consumers have shown some resilience despite economic headwinds, with clothing and footwear seeing a notable 4.4% increase in spending,” he said. 

However, he also warned that while the two-pot pension withdrawal system also provided a short-term boost to household consumption, this is not a sustainable source of long-term growth.

“Investment concerns remain high, as gross fixed capital formation, an essential indicator of economic reinvestment, recorded another negative quarter,” he said. 

“The continued decline in investment, particularly in residential construction, reflects weakened business confidence and limited long-term growth prospects.” 

“Without a turnaround in investment, South Africa’s ability to drive sustained economic expansion will remain constrained.”

Ackerman pointed out that load-shedding relief provided a small boost to economic activity in Q4, as power disruptions were significantly lower than in previous quarters. 

However, he said infrastructure constraints, particularly at ports and railways, continue to hinder economic momentum. 

“The easing of load-shedding was a welcomed development, but broader infrastructure challenges remain a significant drag on growth,” Ackerman said. 

“Until logistics and transport bottlenecks are addressed, these constraints will continue to hold back economic potential.”

In addition, while global trade dynamics had minimal impact in Q4, rising geopolitical tensions, especially in relation to the US, pose risks for SA’s trade relationships in 2025. 

“We are entering a period of increased global uncertainty, and South Africa will need to navigate these challenges carefully to protect its trade interests,” Ackerman said. 

Looking ahead, he said government policy implementation remains slow, but if sustained reforms take hold, a return to 2% economic growth is possible, though not in the immediate future. 

He said South Africa must accelerate economic reforms and investment efforts to ensure a more stable and resilient growth path. 

“Without meaningful structural change, we will continue to see lacklustre growth with limited job creation.”