South Africa’s GDP grew at only 0.6% in 2024, the slowest pace since the pandemic, affected by logistical issues, weak consumer demand, and drought. Key sectors like finance and energy showed growth, but agriculture and trade suffered contractions. The economy’s outlook for 2025 is cautiously optimistic, driven by potential increases in consumption and investment.
In 2024, South Africa’s economy recorded its slowest growth rate in four years, expanding by a mere 0.6%. The sluggish performance stemmed from various factors, including logistical obstacles, weak consumer spending, a drought, and disappointing fixed investment levels. According to Statistics South Africa, this growth is the most stagnant since the economic repercussions of the COVID-19 pandemic in 2020, when restrictive measures significantly impacted output and trade.
While the South African rand showed a slight strengthening against the dollar, trading at 18.5210, the economic outlook remains cautious. Investors are closely monitoring the upcoming budget announcement by Finance Minister Enoch Godongwana, specifically for new strategies to bolster economic growth after a prior financial plan was rejected due to proposed tax increases.
Only three out of ten sectors contributed positively to growth last year, with finance, personal services, and electricity, gas, and water showing increases of 3.5%, 1.7%, and 3.5%, respectively, influenced by improved output from Eskom Holdings in the latter part of the year. Conversely, agriculture and trade sectors experienced notable contractions, with agriculture declining by 8% and trade by 1.4%, while gross fixed capital formation saw a drop of 3.7%.
Bloomberg Economics predicts a potential revival of South Africa’s economy in 2025, driven by increased consumption and investments due to reforms in energy and rail sectors. Yvonne Mhango, an Africa economist, suggests that rising demand will help stimulate industrial activities moving forward. It is important to note that despite the growth in the fourth quarter of 2024, which was aided by agriculture and finance sectors, it fell short of economists’ forecasts.
Household consumption expenditure grew by 1%, supported by lower inflation and interest rate cuts in the latter half of the year. Additionally, the implementation of a two-pot pension system allowing early access to retirement savings bolstered consumer spending. Plans for further interest rate adjustments are expected to maintain this positive momentum into 2025.
In summary, South Africa’s GDP growth in 2024 was notably sluggish, hindered by various challenges across sectors. Key contributors like finance and improvements in the energy sector offered some hope, but overall economic conditions remain fragile. Analysts anticipate gradual recovery facilitated by increased consumer activity and investor confidence, yet considerable challenges still lie ahead, impacting unemployment and poverty rates.
Original Source: financialpost.com
