The economic outlook for South Africa in 2024

The economic outlook for South Africa in 2024 is uncertain, and there are many different opinions, projections, and assumptions, with about an equal positive and negative outlook across the elements reviewed for the economic outlook.

According to the African Development Bank, the economy is projected to grow by 1.5% in 2024, supported by growth in trade, tourism, mining, and manufacturing. Inflation is projected to decline to 4.5% in 2024 on account of reduced fuel and food prices, subject to evolving global dynamics. The fiscal deficit is projected to increase to 6.7% of GDP in 2024 due to fiscal consolidation, including higher tax revenue. The current account deficit is projected to widen to 2.4% of GDP in 2024 due to an anticipated drop in commodity prices.

Source: African Economic Outlook (AEO) 2023

According to PwC South Africa, the economic growth slowed last year to an estimated 2.0% and is expected to continue lower in 2024 to just 1.7%. Growth was below potential in 2023 due to, mainly, ongoing load-shedding and is expected to continue to underperform in 2024 due to the expected regular implementation of rolling blackouts. Inflation is projected to average 5.4% this year from a mean of 6.8% in 2023. Interest rate hikes are also nearing an end, with a possibility of the repo rate starting to decline from the fourth quarter of 2024.

The SA budget review 2024 is a document that provides an overview of the government’s fiscal policy and performance for the 2024/25 financial year, as well as the medium-term projections for the next three years. The budget review 2024 is usually presented by the Minister of Finance in February, along with the main budget speech and the appropriation bill. The budget review 2024 is based on the macroeconomic and fiscal framework that was outlined in the Medium-Term Budget Policy Statement (MTBPS) in September 2023.

According to the report, some of the main highlights of the budget review 2024 are:

• The economy is expected to grow by 1.7% in 2024, after a modest recovery of 1.5% in 2023. The growth outlook is constrained by the persistent electricity supply challenges, weak business confidence, rising interest rates, and subdued global demand.
• The revenue is projected to increase by 6.2% in 2024, reaching R2.01 trillion, or 26.9% of GDP. The revenue growth is supported by the recovery in economic activity, higher commodity prices, improved tax compliance, and some tax policy measures.
• The expenditure is projected to increase by 5.1% in 2024, reaching R2.14 trillion, or 28.6% of GDP. The expenditure growth is moderated by the fiscal consolidation efforts, the wage bill restraint, the reprioritisation of spending, and the reduction of wasteful and inefficient expenditure.
• The budget deficit is projected to narrow from 4% of GDP in 2023 to 3.8% of GDP in 2024, and further to 3.2% of GDP in 2026. The deficit reduction is achieved by maintaining a primary surplus, where revenue exceeds non-interest expenditure, from 2023 onwards.
• The debt is projected to stabilise at 71.4% of GDP in 2026, after peaking at 72.1% of GDP in 2025. The debt stabilisation is achieved by maintaining a prudent borrowing strategy, reducing the borrowing requirement, and lowering the cost of debt.

Some other resources have different forecasts and scenarios for the economy of South Africa in 2024, such as Investec , which expects a lower growth rate of 1.1% in 2024. The report cited the risks of credit rating downgrades, higher interest rates, inflationary pressures, and social unrest as the main factors that could hamper the economic recovery.

Macro Assumptions

Different sources and scenarios that have different projections and assumptions, have been used to review the macro assumptions for South Africa in 2024, with some of the common macro variables considered are:

• Exchange rate: The value of the rand against the US dollar is influenced by both local and global factors, such as economic growth, inflation, interest rates, trade balance, fiscal policy, political stability, commodity prices, and global risk appetite. The web search results show different forecasts for the exchange rate in 2024, ranging from R16.90/USD to R17.45/USD.
• Consumer price inflation: The rate of change in the prices of goods and services consumed by households is affected by factors such as production costs, demand, supply shocks, exchange rate movements, monetary policy, and inflation expectations. The web search results show different forecasts for the inflation rate in 2024, ranging from 4.5%1 to 4.9%.
• Interest rates: The cost of borrowing and lending money is determined by the monetary policy of the South African Reserve Bank, which aims to keep inflation within the target range of 3-6%. The web search results show different forecasts for the repo rate (the rate at which the central bank lends money to commercial banks) in 2024, ranging from 6.5%1 to 7.0%.
• Economic growth: The rate of change in the value of goods and services produced in the economy is influenced by factors such as investment, consumption, government spending, net exports, productivity, labour force, and business confidence. The web search results show different forecasts for the real GDP growth rate (the growth rate adjusted for inflation) in 2024, ranging from 1.1% to 1.9%.
• Unemployment rate: The proportion of the labour force that is actively looking for work but unable to find it is affected by factors such as economic activity, labour demand, labour supply, skills mismatch, structural barriers, and social protection. The web search results show similar forecasts for the unemployment rate in 2024, around 33%, with PWC predicting that it could rise to 40%.

 Manufacturing

The manufacturing outlook for 2024 is not quite clear, as there are many factors that could affect the performance of the sector, for example, supply chain disruptions, inflation, and labour shortages. Some of the possible trends and challenges that manufacturers may face in 2024:

• Smart factories are changing how things are made. Smart factories are part of the broader “Industry 4.0” movement that’s transforming operations and shop floors in production environments across the world. Smart factories use technologies such as IIoT (industrial internet of things), big data, machine learning, artificial intelligence (AI), and advanced analytics to improve efficiency, quality, and flexibility. In the automotive industry, for example, it’s estimated that smart factories could create $37 trillion in value by 2025.
• Supply chain restructuring is changing where products are made. The pandemic has exposed the vulnerabilities and risks of global supply chains, leading many manufacturers to rethink their sourcing and production strategies. Some of the factors that could influence the location of manufacturing activities in 2024 include trade policies, environmental regulations, labour costs, consumer preferences, and resilience.
• Manufacturers raise wages and reskill workers to combat labour shortage. The manufacturing sector is facing a severe talent gap, as many workers have left the industry due to the pandemic, retirement, or better opportunities elsewhere. According to a recent survey, 89% of manufacturers reported difficulty in filling open positions, and 77% said the shortage of skilled workers is the most serious threat to their business.
• Network and connectivity. Network and connectivity are essential for enabling the digital transformation of manufacturing, as they allow the exchange of data and information among devices, machines, systems, and people. The adoption of 5G, edge, fog, and cloud computing in Industry 4.0 is expected to increase significantly in the coming years, as they offer faster speeds, lower latency, higher reliability, and greater scalability. These technologies can support various use cases in manufacturing, such as real-time monitoring, predictive maintenance, digital twin, and autonomous vehicles.

Labour Outlook

According to various sources, the labour outlook for South Africa in 2024 is not very optimistic, as the country faces high unemployment, low growth, and skills shortages. Below are some of the possible trends and challenges that the labour market may face in 2024:

• According to PWC, the unemployment rate is expected to rise to 40% by 2024,  due to the slow recovery of the economy from the COVID-19 pandemic, the impact of load-shedding, the lack of structural reforms, and the mismatch between the demand and supply of skills. The youth unemployment rate, which is already above 60%, could worsen further, creating social and political instability.
• The national minimum wage is expected to increase by 6.1% in 2024, according to WTW. This is to attract and retain workers amidst ongoing inflation and a competitive labour market.
• The skills gap is expected to widen in 2024, according to GlobalData. This is due to the low quality of education, the high dropout rate, the emigration of skilled workers, and the rapid technological changes. The sectors that are likely to face the most severe skills shortages are manufacturing, mining, ICT, and renewable energy.

Alternative Energy

The alternative energy outlook in South Africa for 2024 is positive, as the country is expected to increase its renewable energy capacity and reduce its dependence on coal. According to different sources, here are some of the possible trends and projections for the alternative energy sector in South Africa for 2024:

• The renewable energy industry in South Africa is expected to grow from 14.93 gigawatt in 2023 to 25.21 gigawatt by 2028, at a CAGR of 11.05% during the forecast period (2023-2028). The COVID-19 pandemic negatively impacted the renewable energy industry, but the market is expected to recover and grow at a steady pace during the forecast period. Supporting government policies, such as the Integrated Resource Plan (IRP) and the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), are expected to drive the growth of the market. Solar energy is expected to dominate the market, followed by wind and hydropower.
• Renewable energy will make up more than one-third of the world’s supply of power for the first time in 2024, according to the International Energy Agency (IEA). There is enough renewable energy supply to meet the additional demand for electricity worldwide through 2024. The IEA also shows fossil fuel-generated electricity decreasing in four of the years from 2019 to 2024. South Africa is expected to benefit from this global trend, as it has abundant renewable energy resources and potential.
• The Economist Intelligence Unit (EIU) predicts that despite still-high prices and unsolved supply chain disruptions, demand for fossil fuels will reach record levels, but demand for renewable energy will rise by 11%. The EIU also expects that carbon pricing will become more widespread and effective, creating incentives for switching to cleaner energy sources. South Africa is expected to face challenges in balancing its energy mix, as it still relies heavily on coal for power generation and faces social and economic pressures from the coal sector. However, the EIU notes that South Africa has made progress in diversifying its energy sources and reducing its carbon emissions.

Motor industry

The SA forecast for the motor industry in 2024 is based on various sources and assumptions and may change depending on the economic and social conditions. However, according to various sources, some of the possible trends and projections for the SA motor industry in 2024 includes:

• The SA motor industry is expected to grow by 5.2% in 2024, after growing by 15.5% in 2023, according to Naamsa. This is due to the improved business conditions, consumer confidence, and vehicle affordability, as well as the recovery from the COVID-19 pandemic and the global chip shortage. The passenger car sales are expected to account for the majority of the growth, followed by the light commercial vehicles and the medium and heavy commercial vehicles.
• The SA motor industry is expected to implement the South African Automotive Master Plan (SAAM) to 2035, which was launched in 2018 by the Department of Trade, Industry and Competition. The SAAM aims to increase the local content of vehicles from 39% to 60%, increase the annual vehicle production from 600 000 to 1.4 million, increase the employment in the automotive sector from 112 000 to 224 000, and improve the competitiveness and transformation of the industry.
• The SA motor industry is expected to face some challenges and risks in 2024, such as the high fuel prices, the exchange rate volatility, the load-shedding, the policy uncertainty, the skills shortage, and the environmental regulations. The industry will also have to adapt to the changing consumer preferences and technological innovations, such as the electric vehicles, the autonomous vehicles, and the shared mobility.

New number plates in SA in 2024

• Gauteng and Kwa-Zulu Natal are the two provinces that have confirmed that they will introduce new number plates in 2023 and 2024, respectively. The new number plates will have a different design, colour, and format than the current ones, and will aim to improve the security and efficiency of the vehicle registration and licensing system.
• The new number plates will be made of aluminium and will have a 2D barcode and a hologram to prevent counterfeiting and cloning. The new number plates will also have a radio frequency identification (RFID) tag that will enable electronic identification and tracking of vehicles.
• The new number plates will be mandatory for all new vehicles registered from 2023 in Gauteng and from 2024 in Kwa-Zulu Natal. Existing vehicles will have a grace period of five years to replace their old number plates with the new ones. The new number plates will be valid for ten years, after which they will have to be renewed.

Global economic outlook

• According to the World Bank, the global economy is projected to grow by 1.7% in 2023 and 2.7% in 2024. The sharp downturn in growth is expected to be widespread, with forecasts in 2023 revised down for 95% of advanced economies and nearly 70% of emerging market and developing economies. The main factors behind the slowdown are rising interest rates, higher energy prices, and a slowdown in the world’s two largest economies, China and the United States.
• According to Goldman Sachs, the global economy will perform better than many expect in 2024. Worldwide GDP is forecast to expand 2.6% next year on an annual average basis, compared with the 2.1% consensus forecast of economists surveyed by Bloomberg. The growth outlook is based on the prediction for strong income growth, the expectation that rate hikes have already delivered their biggest hits to GDP growth, and the view that manufacturing will recover.

The global economy is widely expected to weaken in the coming 12 months, according the world economic forum.

Image: World Economic Forumca Renewable Energy Market – Research and Markets

Comparing the 2024 economic outlook for South Africa and the global outlook, the following was observed:

• South Africa’s growth rate is expected to be lower than the global average, regardless of the source. This reflects the country’s specific challenges, such as electricity supply constraints, weak governance in state-owned enterprises, and the global economic downturn.
• According to various sources, South Africa’s inflation rate is expected to be higher than the global average, which reflects the country’s exposure to commodity price shocks, exchange rate movements, and inflation expectations.
• Regardless of the source, data indicates that South Africa’s fiscal deficit and current account deficit are expected to be higher than the global average, which reflects the country’s need for fiscal consolidation, revenue mobilization, and external financing.

In Summary

The 2024 economic outlook review for South Africa indicates that the economy is expected to grow at a low rate, below the global average, due to the persistent electricity supply challenge and the global economic downturn.

The inflation rate is expected to decline, but remain above the global average, due to the exposure to commodity price shocks, exchange rate movements, and inflation expectations. The fiscal deficit and current account deficit are expected to widen, above the global average, due to the need for fiscal consolidation, revenue mobilization, and external financing.

The economic outlook is subject to various risks and uncertainties, both domestic and external, that could affect the growth prospects, inflation dynamics, fiscal performance, and balance of payments.

The 2024 economic outlook for South Africa is a mixed bag of opportunities and challenges, requiring concerted efforts from all sectors and stakeholders to achieve a more sustainable and inclusive growth path.