Macro-economic outlook: Lift in economic growth expected over medium-term, says Investec’s Annabel Bishop

Investec chief economist Annabel Bishop. Photo: Supplied

Investec chief economist Annabel Bishop. Photo: Supplied

Published Jul 1, 2024


Investec chief economist Annabel Bishop said in a market note on Monday:

South Africa’s recent changes in government following the national elections are not expected to alter the path of strengthening economic growth. That is, we continue to expect modest but accelerating growth over a five-year period.

The appointment of the ministers and other executive positions of government has seen the ANC retain the key positions for the economy. The business government collaboration will remain in place, strengthening factors of production.

We forecast economic growth of 1.0% year on year (y/y) this year, slightly down from 1.1% y/y previously as revisions to historical data and a poor first quarter have influenced the figure. But we continue to forecast growth approaching 3.0% y/y by 2029.

The rand saw some strength over the weekend on the appointment of Cabinet positions to establish a working environment to co-govern South Africa with the ANC and DA, along with the IFP, PAC, GOOD, FF+ and PA.

On Monday the rand has run close to R18 to the dollar and is expected to average at that rate this quarter, although data supporting an interest rate cut in the US would push the currency to appreciate significantly beyond this point.

In South Africa, November is the earliest month that a cut in the repo rate is expected to occur. However, the Monetary Policy Committee (MPC) could easily deliver its first interest rate cut only in 2025 instead, as its tone has not softened in this regard.

In addition, consumer price index inflation has been very slow to moderate over the past 12 months, averaging 5.4% y/y in quarter one (Q1) 2024, after quarter four 2023’s 5.5% y/y, up from 5.0% y/y in quarter three 2023, and is likely to average 5.2% y/y for quarter two 2024 as inflation has been very sticky.

Consumer spending was curtailed by higher inflation and weakening real incomes, a key driver of economic growth below 1.0% y/y last year. The latest data shows improving incomes as the business environment strengthens without load shedding.

The jump in real incomes in May – by 4.5% y/y and 0.2% y/y for April – is positive for stronger economic growth in quarter two 2024, after quarter one 2024. Market sentiment has improved on the progress in government, but 2024 is still likely to be a weak year…

The ministerial changes see energy (electricity) separated from mineral (and petroleum) resources. This was already in the process of occurring before the elections, but the DA lacks a portfolio with economic heft, as the ANC holds on to the Ministries of Trade and Industry, Mineral Resources, Small Business Development and the Presidency.

The DA holds six ministries, the ANC 20, with the ANC at 40.2% of the national vote and the DA 21.8%. In addition, the ANC retains the Planning Monitoring and Evaluation, Finance, Electricity and Energy and Water and Sanitation ministries.

While the DA has Agriculture, Forestry, Fisheries and the Environment Ministry as well as Tourism (but poorly funded), and the Communications and Digital Technologies Ministry, agriculture (which includes forestry and fisheries), while vital, makes up only 3.0% of GDP.

Communications makes up less than 10% of GDP. The industries where policy changes need to occur are in trade and industry, along with mineral and petroleum resources (particularly exploration) in order to boost economic growth.

The DA holds the Public Works and Infrastructure Ministry, but the government/business collaboration on the energy and freight crises has already addressed many of the electricity issues, along with Minster Kgosientsho Ramokgopa.

Transnet continues to underperform heavily relative to the economy’s needs, with port congestion still a feature as well as insufficient and deteriorated rail transport capacity, while the ANC retains the management of the Transport Ministry.

Key is also the various political parties being able to work together in order to spur faster economic growth than the current trajectory expected, rapid growth of well above 3.0% y/y substantially reduces unemployment, improves social cohesion and stability.

* This is an edited market note from Bishop.