South Africa is poised for economic stagnation this year if there is no improvement in aggregate demand and an increase in investment inflows, Oxford Economics Africa said on Friday.
Although the rand made some recovery last week, “widening fiscal and current account shortfalls will exert depreciatory pressures” going forward, according to a survey by forecaster FocusEconomics, which sees the rand closing this year at R18.48 to the dollar, and ending 2025 at R18.63 to the greenback.
Although there was an uptick in retail sales in December, there was also a deterioration in new business output and stocks of purchases, said FocusEconomics, adding that the crisis at South African ports “continued to cause severe shipping delays”, which were impacting business and the economy.
S&P Global senior economist David Owen highlighted that “delivery delays” at South Africa’s ports “had a destabilising impact” on the South African economy in December.
“With the decline in supplier performance worsening, this indicates that the port gridlock is likely to further dent the economy at the start of 2024 as businesses face greater shortfalls in input supply,” said Owen.
Jee-A van der Linde, a senior economist at Oxford Economics Africa, said in an interview that “uncertain investors are becoming more reluctant to operate” in a less competitive South African market.
“This drove firms to scale back output once again; they did so at the steepest pace in seven months. Similarly, new orders fell at the sharpest rate since the start of 2023, hurt by continued load shedding, weak customer consumption and supply challenges,” said Van der Linde
More volatility is expected to emanate from the political framework ahead of elections later this year. Analysts expect the ruling ANC to ratchet up rhetoric ahead of the election.
However, an increase in investor sentiment translating to increased investment inflows for South Africa, as well as an upswing in demand across the economy, would likely boost growth.
“The current economic trends point to increased risks of stagnation in 2024. Without a sustained recovery in demand, and unless investment increases, the broad-based economic growth needed to boost employment and welfare cannot happen. ,” explained Van der Linde.
He also said national elections this year “present novel uncertainty, with South Africa’s macroeconomic fundamentals weaker than before the pandemic, and amid widespread impediments” to growth.
“Consequently, South African assets are under-performing. That said, I think we might see a temporary post-election relief rally following a protracted period of uncertainty,” he said.
According to the 2024 South Africa Fund Manager Survey, released by Bank of America last week, weak logistics infrastructure and a rising debt path as well as fiscal dominance headwinds would be the major drawbacks for the southern African economic powerhouse.
Many analysts believe the ANC would emerge from the upcoming election under a coalition with smaller opposition parties. After the elections, policy reforms would need to be intensified to promote growth and attract more investment, say some of the analysts.
However, many doubt the ANC is well positioned to institute economy policy reforms at a time support and confidence in the ruling party has been waning due to corruption, state capture and entrenching corporate governance shortfalls.
“The ANC led government is bereft of ideas to tackle the country's many challenges. South Africa's economy is operating highly inefficiently, and domestic industries are losing competitiveness,” said Van der Linde.
On the upside, Bank of America analysts said last week that rate cutting by the South African Reserve Bank(SARB) was expected to kick-in in the second half of this year. While other global central banks were poised to start rate cutting earlier, the SARB was set to delay this to the second half of the year, or to May at the earliest.