KPMG South Africa said it is forecasting economic growth of 1.5% in 2025 and a further 1.8% in 2026.
The company said that the inflation rate is expected to end 2024 well below target and remain there through 2025.
Consequently, interest rates are set to continue to decline, which will subsequently provide breathing room for consumers and businesses alike.
The unemployment rate is still a concern and is expected to decrease slightly from the current 33% over the same period.
These latest predictions are off the back of the KPMG Global Economic Outlook.
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Frank Blackmore, Lead Economist at KPMG said, “The positive sentiment following South Africa’s general elections in May 2024, the improved performance of electricity supply as well as more recent reductions in inflation - underpin a more optimistic view of the economy over the forecast period.”
In the first half of 2024, the economy grew by an average real 0.2%, which was limited by elevated inflation and consequently interest rates, which suppressed both private consumption and business expenditure, augmented by ongoing interruptions in power supply in the first quarter of the year. Q3 GDP contracted by 0.3% on the back of a large contraction in agricultural production, while many other sectors grew only marginally over this period impacted by logistics bottlenecks and weak demand abroad. Consequently, the growth forecast has been reduced slightly over the forecast period.
“The expectation, however, is for stronger economic growth over the final quarter of the year on the back of the improved macroeconomic environment,” Blackmore added.
The positive momentum is expected to continue into 2025 and 2026 with GDP growth forecast to improve over this period to levels around the average of 1.7% experienced over the ten years leading up to the Covid-19 pandemic.
“However, this is still below what is required to make a meaningful impact on economic inclusion to absorb a significant proportion of the unemployed into the labour market,” he said.
“Consequently, unemployment is expected to still be elevated with only slight improvements over the forecast period due to the upwardly adjusted economic growth expectation.”
Inflation has slowed to 2.8% in October 2024 down from 5.3% at the start of the year and to the lowest level since February 2021.
This reduction in the rate of inflation is the primary reason behind the central bank commencing its interest rate reduction cycle.
“The positive effect of a reduction in interest rates of households and businesses should lead to an increase in both consumption and investment spending. The largest contributors to the inflation rate remain housing and utilities (electricity and water) followed by certain food and non-alcoholic beverages and financial and insurance services, continues Blackmore.
“The Monetary Policy is expected to loosen further in 2025 as inflation remains below the target rate,” he said.
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