Recent reports indicate that South African companies are witnessing a rebound in consumer demand as the economy gains momentum. This turnaround is attributed to the easing of power shortages and declining inflation. Notable firms like Discovery Ltd. and Shoprite Holdings have reported double-digit profit increases, signaling renewed consumer confidence and spending, despite lingering concerns over global economic pressures, particularly related to trade tensions.
South African firms have observed an uptick in consumer demand, coinciding with improvements in the economy, particularly due to the alleviation of severe power shortages and a decrease in inflation rates. Major companies such as Discovery Ltd., Shoprite Holdings Ltd., and Harmony Gold Mining Co. have reported substantial profit increases. Additionally, Nedbank Group Ltd. surpassed profit projections, reflecting positive trends across various sectors.
For years, South African enterprises have invested considerably to compensate for the inefficiencies of the state-run power utility. A reliable power supply is instrumental in restoring consumer confidence and enhancing demand across diverse products, including automobiles and insurance offerings. Moreover, a new regulation permitting consumers to access a portion of their retirement funds further stimulated demand.
David Shapiro, Chief Global Equity Strategist at Sasfin Securities, noted that the enhanced power supply has significantly alleviated the burdens on manufacturing firms, reducing operational costs and facilitating increased productivity. He remarked that the economic climate has exhibited a more stable demeanor, albeit from a low starting point.
Eskom Holdings SOC Ltd., the primary power provider, has executed essential repairs on its coal-fired power plants, which predominantly supply the nation’s electricity, resulting in consistent electricity availability. The International Monetary Fund anticipates a 1.5% economic growth for South Africa in 2023, following years of minimal annual growth.
Although the nation recorded a 0.6% economic growth in 2024, the slowest pace since the peak of the COVID-19 pandemic, the fourth quarter showed signs of recovery with a 0.6% growth, following declines in the preceding three months. Household consumption, a critical component of the gross domestic product, rose by 1% during this period.
Yvonne Mhango, an economist for Bloomberg Economics, indicated that “South Africa’s growth will likely accelerate in 2025” driven by rising consumption. She highlighted that increased demand could lead to growth in investment and industrial activities, particularly supported by sector reforms.
Despite this positive outlook, challenges persist. Nedbank Chief Executive Officer Jason Quinn expressed concerns over potential negative impacts stemming from elevated global trade tensions initiated by US President Donald Trump, particularly given recent claims about land confiscations in South Africa, which local authorities affirm have not occurred since 1994.
As a result of these factors, the South African benchmark FTSE/JSE Africa All Shares Index has seen a 3.3% gain this year, although it faced a 0.8% decline in late afternoon trading in Johannesburg.
In summary, South African firms are experiencing a resurgence in consumer demand due to improved economic conditions, including the stabilization of power supply and reduced inflation. Major companies report significant profit increases, while household consumption is displaying positive trends. However, concerns remain regarding external economic pressures. Overall, the outlook for South Africa’s economy appears more optimistic going forward.
Original Source: financialpost.com
