Absa has revised its 2024 and 2025 growth forecasts for South Africa’s economy on the sustained stable supply of electricity, slowing consumer inflation and pending interest rate cuts, as well as the apparent support for structural reforms in the ports and rail sector by the Government of National Unity (GNU).
In its South Africa third quarter of 2024 Quarterly Perspectives’ report yesterday, Absa said it was more constructive on growth than in the last Quarterly Perspectives.
Absa said recent high-frequency activity data suggest a stronger rebound in the second quarter than it expected earlier after the slight gross domestic product (GDP) contraction in the first quarter.
Absa’s Corporate and Investment Bank (CIB) senior economist, Miyelani Maluleke, said they had lifted their 2024 real GDP growth forecast by 0.2 percentage points to 1.1%, and now see 2025 growth at 2.0%, up by 0.3 percentage points.
Maluleke said electricity supply has stabilised faster, which should support activity for the rest of the year.
“As we look at the environment right now, we do believe that there are good reasons to be a little bit more optimistic about growth. And we have lifted our forecast a little bit from where we are,” Maluleke said.
“About a quarter ago, we are now expecting real GDP growth of 1.1% this year from our previous forecast of 0.9%.
“We've also lifted our forecast for 2025 to 2.0% from our previous forecast of 1.7%. And there are several factors behind our expectation of this strong growth environment for South Africa.”
Absa is now expecting headline consumer inflation to hit 4.4% in September, and average 4.1% in the fourth quarter of 2024 and 4.3% in 2025.
With inflation likely to reach the 4.5% midpoint much earlier than expected, Absa said it was expecting the SA Reserve Bank to cut interest rates by 25 basis points in each of the next four meetings, ultimately leaving the repo rate at 7.25%, down from the current 8.25%.
“We are looking at a lower inflation path. And just to touch on interest rates, we are looking at a 25 basis point cut in September and we are looking at three more 25 basis point cuts in the following meetings in November, in January and in March,” said Absa CIB economist, Sello Sekele.
“So that will leave the repo rate at the terminal of 7.25% or if you think about prime rate, it will leave prime at the terminal of 10.75%.
“But our forecast is not without risks. So when you look domestically, some of the risks include the GNU. So it's not clear if the GNU will be better in terms of implementing structural reforms as well as the stability of the GNU is not guaranteed.”
In terms of employment, Absa said it expected an average job additions of around 180 000 from next year until 2027.
Meanwhile, Maluleke also said the GNU seemed tethered to the reform path as early perceptions suggested that the new administration will continue on the reforms path championed by the Operation Vulindlela initiative.
He said they believed that the GNU outcome and its support for macro stability and continued reform should bolster confidence, given the uncertainty regarding governance and policy before the recently concluded elections.
“There's still a little bit more work that has to be done around electricity, and in particular just completing the restructuring of this farm.
“There's a lot of work that has to be done around expanding the transmission network to enable more private sector activity, more work to transport water, and, of course, a number of other reforms.
“And I think where we are right now, the indication is that this GNU is going to support continued reform in all of these areas.”
However, Maluleke said there was always some degree of uncertainty around this positive GDP estimate.
“And certainly one of the things that I think is the big source of uncertainty right now is the agricultural sector. It's been pretty clear that the only event that we had late last year, a little bit into this year, is that we used to have the summer crops,” he said.
“Given that the agricultural sector tends to be quite volatile in a way, it is a small part of the economy, it's probably one of the big risks, I think, for that second-quarter GDP to be created.
“But the most significant thing for South Africa right now is the stability that we are beginning to see in the performance of critical economic infrastructure.”
BUSINESS REPORT