South Africa managed to avoid a technical recession despite recording the worst year of loadshedding on record in 2023.
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According to Deloitte’s May 2024 edition of its South Africa Economic Outlook, the country’s real gross domestic product (GDP) stood at 0.6% last year.
During the first half of 2023, businesses and households invested in self-generation and rooftop solar power, which increased investment spending and helped close the energy gap.
However, household spending growth remains flat due to the high cost of living and the ongoing energy crisis.
The article further states that increased operational challenges in rail and port infrastructure had also harmed investment and much-needed growth on both the demand and supply side.
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High costs of business, high lending rates, power and transport constraints, and policy and political uncertainty linked to the upcoming elections have also hampered business sentiment.
‘Of the 10 industries reported on by Statistics South Africa (StatsSA), four saw contractions in 2023, while three recorded marginal positive increases (less than 1%),’ the report notes.
‘Only the finance, transport, and personal services sectors grew more than 1% – by 1.8%, 4.3%, and 2%, respectively.’
The National Treasury made more optimistic projections for GDP growth, stating that South Africa’s GDP could reach 1.3% this year and 1.6% in 2025, compared to the International Monetary Fund (expecting 0.9% in 2024 and 1.3% in 2025).
South Africans experienced a major increase in the cost of living last year, resulting in fewer savings in lower- and middle-income groups as households spent most of their incomes on necessities.
Headline inflation continued to trend between 5% and 6% since September 2023, proving stubbornly high, driven by increases in the cost of food, fuel and electricity.
Nevertheless, Deloitte notes that consumers are in for some relief as annual average inflation is expected to drop from 6% in 2023 to 5.1% in 2024, 4.6% in 2025 and 4.5% in 2026 as per the South African Reserve Bank’s (SARB) latest forecasts.
Small rate cuts in South Africa are also likely, which could support increased household consumption, boosting growth and consumer confidence.
That said, Deloitte notes that a lot of hard work still lies ahead.
‘Addressing energy and infrastructure challenges, together with easing inflation and a commensurate lower interest rate environment post the incoming administration – hopefully one that implements reforms and works toward fixing what is broken – will help unlock confidence and South Africa’s economic potential.’
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