South Africa’s Economic Growth Takes a Hit: Economists Revise 2024 GDP Projections Amidst Weak Q3 Results

South Africa’s economy has faced a major setback, with Q3 GDP figures showing a surprising decline that has led economists to revise their growth projections for 2024. Once optimistic about the country’s potential to cross the 1% growth mark, many experts are now forecasting a more modest performance. The latest data has placed full-year projections at 0.8%, down from earlier expectations, as key sectors continue to struggle.

The Disappointing Q3 Performance

According to Lisette IJssel de Schepper, the Chief Economist at the Bureau for Economic Research (BER), the Q3 GDP slump was mainly driven by a sharp drop in the agriculture sector. This resulted in a quarterly contraction, setting back the entire year’s economic expectations. While many had hoped that post-election optimism and the end of load shedding would help turn the economy around, the reality has been quite different.

De Schepper pointed out that even without the agriculture decline, South Africa’s economy would still have faced sluggish growth. The manufacturing sector and the broader industrial production network are grappling with multiple challenges. Logistics issues, which have persisted for years, continue to hurt the economy’s recovery, despite some positive changes, like lower inflation and interest rates.

Revised Projections: A Bleaker Outlook

With the economy struggling to gain momentum, economists at Nedbank have taken an even more cautious view. They have adjusted their GDP growth forecast for 2024 to just 0.5%, with a potential recovery expected in 2025. Despite this downbeat projection, Nedbank anticipates that consumer demand will boost growth in the final quarter of 2024, aided by inflation staying subdued and interest rates declining.

However, they also warn that several factors, including slower government spending and a modest investment recovery, will likely temper the recovery. Net exports remain a significant drag, preventing a stronger boost from domestic consumer spending.

Slight Relief for Consumers, but Challenges Remain

On a more positive note, consumers are receiving some welcome relief in the form of lower interest rates and reduced inflation. However, De Schepper emphasized that the benefits of these changes may not be substantial enough to influence South Africa’s GDP significantly this year.

In addition, the introduction of the two-pot retirement system has provided temporary financial relief for households, but real income growth and job creation will be key to driving more sustainable consumer spending in the future.

Despite the challenges facing South Africa’s economy in 2024, there is some optimism for the future. Sanisha Packirisamy, Chief Economist at Momentum Investments, maintains a 1% growth forecast for 2024, with a potential rebound to 1.8% in 2025.

The International Monetary Fund (IMF) and South African Reserve Bank (SARB) have both revised their projections, with the IMF forecasting a 1.1% growth for 2024, a slight increase from previous estimates. Looking further ahead, both the IMF and SARB predict stronger growth in 2025, with the SARB’s projections standing at 1.7%.

South Africa’s 2024 GDP outlook has been revised downward due to weaker-than-expected performance in Q3, particularly in the agriculture and manufacturing sectors. While short-term recovery seems unlikely, economists remain cautiously optimistic about 2025, expecting a recovery spurred by structural reforms, consumer demand, and an improved global economic environment.

As South Africa navigates these turbulent economic times, attention must remain focused on sustained income growth and job creation, as these will be critical to ensuring a long-term recovery and economic resilience.

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