Improved electricity supply sparks optimism for South Africa's economic outlook
• South Africa’s growth: The South African economy’s real GDP was only 0.4% higher in H1-2024 than it was during the corresponding period in 2023. The country’s logistical issues remain a major hindrance to economic activity, while there was heightened uncertainty due to the May 29th general election’s outcome during H1-2024. Nonetheless, a marked improvement in electricity supply, logistics that are slowly recovering, and improved sentiment towards South Africa since the successful formation of the new government should support growth from Q3-2024. We expect growth to register approximately 1% in 2024.
• South African assets: For the most part, there has been a notable turnaround in the performance of South Africa’s assets during the past few months, with both global and domestic factors contributing to the improvement. As a result, there were significant net purchases of domestic bonds by non-residents in the first nine months of 2024, in contrast to the net sales during the same period in 2023.
• SA international investment position: South Africa’s positive net international investment position declined from end of Q1-2024 to the end of Q2-2024. This reduction during the second quarter stemmed from a combination of lower foreign assets and higher foreign liabilities. The appreciation of the rand had a more pronounced effect on foreign assets than on foreign liabilities, contributing significantly to the overall decrease.
• Production: There was increased activity in 7 out of 10 of South Africa’s main economic sectors. The "electricity, gas and water" sector was the top performing sector during Q2-2024, with the growth driven by increased electricity production and consumption, which was supported by Eskom's improved energy availability factor. This positively contributed to broader economic activity.
• Households: Domestic demand underwent an expansion in the second quarter of 2024 following a contraction in the first quarter, and this came largely on the back of an increase in final consumption expenditure by households. The expansion in final consumption expenditure by households was in line with improved conditions for consumers, which included lower inflation and an increase in real disposable income, as well as growth in net wealth. Nonetheless, real household spending in H1- 2024 was just 0.3% higher than in the same period of 2023, highlighting the pressure on household finances. Consumption expenditure should start benefiting from the continued moderation in inflation and the two-pot retirement reform.
• Investment: There was a contraction in gross fixed capital formation in Q2-2024, which was on account of decreased investment by all three main organizational types. Although private investment received a substantial boost from spending on renewable energy projects in response to heightened load-shedding over the past two years, activity in this area has recently slowed considerably. Nonetheless, the easing of inflation and improving sentiment on the back of more stable electricity supply are likely to boost confidence and therefore, investment especially by the private sector.
• Employment: There was an increase in employment in the third quarter of 2024, with the number of employed individuals increasing by 294,000 to 16.9 million.
• Inflation: South Africa’s annual consumer inflation rate moderated further in September 2024. Headline inflation has been declining consistently since March 2024, suggesting that inflation has finally come under control since its elevated rates from end-2021. The September print also places the inflation rate 0.7 of a percentage point below the SA Reserve Bank’s target rate of 4.5%. The recent decline in headline inflation reflects various factors, including the moderation in international oil prices. However, the notable strengthening of the rand has played a significant role in driving down fuel and goods prices across the board.
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