Stronger rand, lower inflation and lower rates are among factors contributing to optimistic view
Stronger rand, lower inflation and lower rates are among factors contributing to optimistic view
Striking a more optimistic tone than the SA Reserve Bank and the IMF, the Bureau for Economic Research (BER) believes SA’s GDP can grow by more than 2% in 2025.
Its most recent macroeconomic outlook for SA, presented at the BER conference in Johannesburg on Wednesday, sees GDP growing by 1% in 2024, followed by 2.2% growth in 2025.
A stronger rand, lower inflation, lower interest rates and some improvement in business and consumer confidence all contributed to its “more optimistic” outlook, said Shannon Bold, a senior economist at the BER.
In its latest update, the Reserve Bank projected GDP to grow by 1.5% in 2025, while the IMF expected the economy to expand by a modest 1.2%.
If the BER is right, SA’s economic performance in 2025 will be the best it has been since the postpandemic growth rate of 4.7% in 2021 (which was off a very low base after GDP contracted by 6% in 2020). The economy grew by 1.9% in 2022 and 0.7% in 2023, and GDP is broadly expected to average about 1% in 2024.
Apart from 2021, the last time SA saw its GDP expand by more than 2% was in 2013.
According to Bold, the optimistic forecast for 2025 considered poorer-than-expected economic growth in the first half of 2024, which would drag down average growth for the year even if economic activity picked up in the second half of the year. The 2.2% growth for 2025 was, therefore, coming off quite a low base
“But there are other, real tangible reasons as well. We believe logistics disruptions have already eased and will continue to ease, presenting less of a constraint to growth,” she said.
Business and consumer confidence, said Bold, had picked up thanks to the formation of the government of national unity, which could boost consumer spending and capital outlay by firms.
“We also expect some pent-up demand to be released, especially on the consumption side.”
The BER sees headline inflation averaging 4.8% in 2024, and then slowing to an average of 4.6% in 2025, compared with the Bank’s expectation of 4.9% in 2024 and 4.4% in 2025.
Given expectations that inflation would move towards the midpoint (4.5%) of the Bank’s target range of 3% to 6%, the BER predicts the monetary policy committee could start implementing a repo rate cutting cycle in September after having kept it steady at 8.25% for seven consecutive meetings.
“We expect the MPC to cut rates by 25 basis points (bps) at their September meeting and with another 25 bps in November. That will be 50 bps this year, followed by another 50 bps early next year.
“Lower inflation means that disposable income is relatively higher, and with lower borrowing costs we are expecting consumers to be less under pressure than what they are currently,” said Bold.
The BER expects the rand to appreciate against the dollar, adding further support for lower inflation, with an average exchange rate of R18.32 in 2024, improving to R17.86 in 2025.
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