In 2024, South Africa’s economy grew by only 0.6%, its slowest pace in four years, hindered by logistical issues, drought, and weak consumer demand. Key sectors like finance showed positive growth, while agriculture and trade declined sharply. Despite forecasts of improvement in 2025, the current growth remains insufficient to tackle the high unemployment and poverty rates.
In 2024, South Africa’s economy registered its slowest growth in four years, expanding by just 0.6% compared to 0.7% in 2023, as stated by Statistics South Africa. The lackluster performance was attributed to logistical challenges, low consumer spending, a drought, and insufficient investment. This marks the worst growth rate since the COVID-19 pandemic’s peak in 2020, which severely disrupted economic activity.
The unofficial currency of South Africa, the rand, strengthened by 0.5%, trading at 18.5210 at 2:54 p.m. local time. The upcoming budget announcement on March 12 by Finance Minister Enoch Godongwana is being closely monitored by investors for measures aimed at stimulating growth. Previous budget proposals faced rejection over plans to increase value-added tax by 191 billion rand ($10.2 billion) over three years.
Growth occurred in only three of the ten economic sectors, including finance, personal services, and electricity, with improvements noted at Eskom Holdings. Agriculture and trade significantly hindered growth, experiencing contractions of 8% and 1.4%, respectively. Moreover, gross fixed capital formation saw a decline of 3.7%, marking its worst showing since the pandemic onset.
According to Bloomberg Economics, a rebound is expected in 2025, primarily driven by rising consumption. Economists predict that increasing demand will foster investments and boost industrial activity, alongside reforms in the energy and rail sectors. The growth in 2024’s fourth quarter, which recorded a 0.6% increase, helped ameliorate the overall performance despite being below economists’ expectations.
The encouraging results in the fourth quarter were largely propelled by agriculture and finance, contributing to the overall GDP. Household consumption expenditure increased by 1%, benefiting from low inflation and recent interest rate cuts, which fostered higher consumer spending. Analysts believe this positive momentum will continue into 2025, particularly following an additional interest rate cut in January.
While a Bloomberg survey forecasts a 1.7% economic expansion for the coming year, experts caution that this will not significantly alleviate South Africa’s high unemployment and poverty rates. The target set by the African National Congress was a more ambitious 3% growth rate post-elections in May.
In summary, South Africa’s economy is facing substantial growth challenges, with a mere 0.6% increase in GDP for 2024, influenced by various adverse factors. While some sectors displayed positive growth, others like agriculture and trade significantly detracted from overall performance. The economic outlook for 2025 appears more promising, contingent upon rising consumer demand and necessary structural reforms. However, current growth levels remain inadequate to address the country’s pressing issues of unemployment and poverty.
Original Source: financialpost.com
