National Treasury Projects Cautious Optimism for South African Economic Growth

National Treasury Projects Cautious Optimism for South African Economic Growth

National Treasury has projected improved growth prospects for the South African economy, despite a downward revision in the expected growth rate to 1.1% for 2024, down from 1.3% earlier this year. This revision comes in light of the economic conditions that have persisted throughout the year.

In its Medium-Term Budget Policy Statement (MTBPS), Treasury noted that real Gross Domestic Product (GDP) growth is anticipated to improve from 0.7% in 2023 to 1.1% in 2024. However, it highlighted that economic growth has been hindered by “stop-start” dynamics and stubborn inflation during the first half of the year.

Factors contributing to the anticipated economic strengthening include the suspension of power cuts since March, improved confidence following the formation of a Government of National Unity in June, better-than-expected inflation outcomes, and reduced borrowing costs. These factors are expected to continue bolstering the economy moving forward.

Despite these positive developments, Treasury cautioned that growth is still constrained by persistent issues, particularly in logistics infrastructure. The department emphasized that maintaining macroeconomic stability, implementing structural reforms, enhancing State capabilities, and increasing infrastructure investment are essential for achieving faster growth.

While risks to the domestic outlook appear more balanced compared to previous assessments, global risks remain weighted to the downside. Potential challenges include financial market volatility, tightening conditions for developing economies, and a prolonged contraction in China’s property sector. Additionally, food prices remain vulnerable to weather-related shocks and logistical issues.

Conversely, there are positive domestic risks, such as a faster pace of disinflation and possible interest rate reductions, which could stimulate demand. Improved electricity supply and accelerated progress on reforms could further enhance business and consumer confidence.

Treasury also warned of significant fiscal risks, which, if materialized, could jeopardize fiscal projections and hinder investment and economic growth. However, there is cautious optimism for the medium-term outlook as the benefits of ongoing reforms become apparent.

The stabilization of electricity supply has notably improved the investment climate, and a new phase of Operation Vulindlela aims to expedite the implementation of structural reforms. To support these initiatives, maintaining clear and stable macroeconomic policies will be critical.

On the global front, growth is projected to slow slightly from 3.3% in 2023 to 3.2% in 2024 and 2025. Slowing inflation has prompted major central banks to ease monetary policy, while investment in technology, particularly in emerging Asia, is expected to support global growth. However, geopolitical tensions, persistent debt issues in some countries, and the ongoing downturn in China’s property sector pose risks to this outlook.

In advanced economies, growth is forecasted at approximately 1.8% during the same period, while emerging and developing economies, including South Africa’s BRICS partners, are projected to grow at 4.2%. In Sub-Saharan Africa, growth is anticipated at 3.6% in 2024, improving to 4.2% in 2025.

Overall, the MTBPS reflects a cautiously optimistic outlook for South Africa’s economy, emphasizing the need for continued reforms and stability to achieve sustainable growth in the coming years.