In search of fiscal consolidation
The expectation underpinning this forecast is for the more benign grouping of parties to result in the approach to the market and economy remaining constant or even improve slightly. In June 2024, it was announced that a Government of National Unity (GNU) including the ANC, DA, IFP and other smaller parties would be formed.
South Africa’s economy in 2024 is expected to grow by 1.2% according to KPMG. This follows growth of 0.6% in 2023 and looking forward is expected to grow by a marginally higher 1.8% in 2025. The increased economic growth estimates are because of the better-than-expected stability of the electricity grid through the first half of 2024 with continual supply of electricity since 27 March 2024. This represents a marked increase in the supply and consistency of electricity and underpins a marginally higher economic growth rate through 2024 and beyond.
The average growth prospects for South Africa over the forecast period is however still below the average of 1.7% experienced over the ten years leading up to the Covid-19 pandemic and far below what is required to make a meaningful impact to economic inclusion and absorb a significant proportion of the unemployed into the labour force. Consequently, unemployment is expected to remain elevated with only slight improvements over the forecast period due to the upwardly adjusted economic growth.
Monetary policy is expected to remain tight through most of 2024 as inflation slowly moves lower towards the target rate of 4.5% from the most recent reading of just over 5%. High housing and utilities inflation combined with pressure from certain food and non-alcoholic beverages and some services are keeping headline inflation higher for longer and contributing to the tight monetary conditions until the final quarter of 2024, where it is expected that interest rates will start to be reduced. The anticipated reduction in interest rates starting in the final quarter of 2024 is expected to provide an additional boost for economic growth in 2025.
Frank Blackmore, Lead Economist, KPMG in South Africa.
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