South Africa’s Economy Grows at Slowest Rate Since Pandemic in 2024

In 2024, South Africa’s economy grew by just 0.6%, marking its slowest pace since the pandemic. Major sectors struggled with growth due to logistical issues, a drought, and weak consumer spending. Only three sectors contributed positively, as agriculture and trade faced significant declines. Given the low growth rate, challenges remain regarding high unemployment and poverty levels, with expectations for a stronger recovery in 2025.

In 2024, South Africa’s economy recorded its slowest growth in four years, expanding by only 0.6%. This marked a decline from the 0.7% growth rate observed in 2023, highlighting significant challenges faced by various sectors due to logistical issues, a drought, and stagnant consumer spending. The findings were reported by Statistics South Africa in Pretoria, detailing a stark contrast to the surge of growth seen during the country’s recovery from the pandemic in 2020.

The gross domestic product growth was the lowest since the pandemic aftermath, where severe lockdown measures significantly hampered economic activity and trade. Investors are closely observing the upcoming budget presentation by Finance Minister Enoch Godongwana on March 12, which aims to address these economic hurdles. Previous proposals for increased value-added taxation were met with resistance by the governing coalition, undermining potential financial strategies.

Only three out of ten economic sectors contributed positively to the growth in 2024. These included finance, personal services, and utilities, which posted expansions of 3.5%, 1.7%, and 3.5% respectively. The electricity sector saw improvement attributed to the state utility Eskom Holdings SOC Ltd., which effectively reduced power outages in the latter part of the year. However, agriculture and trade sectors experienced considerable declines, with contractions of 8% and 1.4%.

According to Bloomberg Economics, the outlook for 2025 suggests a potential acceleration in growth driven by rising consumer demand and increased business investments, further supported by ongoing reforms in energy and rail sectors. The fourth quarter of 2024 showed a growth rebound of 0.6% following a contraction earlier in the year, although it fell short of economist expectations. Economic activity was bolstered by significant growth in agriculture and financial sectors.

Household consumption, a major component of the GDP, saw a modest increase of 1% during this time, influenced by lowered inflation and recent interest rate cuts. “We saw that toward the end of 2024, two pot funds contributed to household expenditure,” emphasized Bokang Vumbukani-Lepolesa, chief director for national accounts at Stats SA. Expectations for a further rise in consumption are anticipated following additional interest rate cuts.

Despite these improvements, the projected 1.7% growth rate for 2025 remains insufficient to address South Africa’s critical unemployment and poverty rates. This growth is significantly below the desired 3% benchmark established by the African National Congress after its reduced majority following the May elections.

In summary, South Africa’s economic performance in 2024 was notably sluggish, achieving the lowest growth rate since the pandemic. Various factors such as logistical constraints, poor consumer spending, and adverse weather conditions hindered overall economic progress. Although a modest recovery is anticipated in 2025, substantial challenges persist, particularly concerning high unemployment and poverty rates, pointing to the need for effective policy interventions and economic reforms.

Original Source: financialpost.com