Absa is the latest financial institution to revise upwards its GDP for SA for 2024 and 2025 as Eskom keeps the lights on, restoring confidence in the underperforming economy, but warned that emerging water shortage was a risk to the outlook.
The bank, in the Quarterly Perspectives report for the three months to the end of September released on Wednesday, said its baseline forecast assumed no further systematic implementation of load-shedding.
It revised upwards its 2024 real GDP growth forecast to 1.1% from 0.9% and revised upwards 2025’s growth projection to 2%, from 1.7% previously, with the group now expecting annual average growth of 2.2% in 2026-27, 0.5 percentage points higher than its previous baseline.
“After the slight GDP contraction in Q1, recent high-frequency activity data suggest a stronger rebound in Q2 than we expected earlier. Electricity supply has stabilised faster, which should support activity,” it said.
Longer term, continued electricity supply stability and the government of national unity’s apparent support for continued reform in the critical areas of infrastructure were likely to boost private confidence and investment, it said.
“Nevertheless, there is still much more to do to improve the performance of logistics infrastructure. Stats SA data on freight rail volumes show a gradual recovery from the deterioration of the last few years but that recovery has not been smooth. Encouragingly, comments from some major coal exporting companies indicate a slight improvement in performance and better engagement with Transnet to find solutions.
“Separately, localised water shortages are an important risk to monitor. For example, there has been a rise in reported water outages across parts of the Gauteng province due to challenges with local delivery infrastructure. The aforesaid factors could continue to constrict the improvement in GDP growth.”
Absa’s 2025 GDP growth projection is in line with that of Citibank. Comments from the Bank of America fund manager survey for August, released on Wednesday, said anticipated reforms in rail, ports, transmission and skills could drive GDP growth to 2%-2.5% in the next three years.
Absa expects the rand to strengthen to R17.50 against the dollar by year-end, warning that risks to its outlook include a market- unfriendly US election “and/or a protracted slowdown in the US economy because either of these events could bring about broad-based global risk aversion”.
The lender expects the SA Reserve Bank to cut the repo rate by a total of 100 basis points starting in September with the last cut in March 2025.
The bank is also expecting a spending boost from the imminent implementation of the two-pot retirement system.
“There is a high degree of uncertainty around the question of how much of this will be withdrawn and the consequent effect on consumer spending. By making a number of assumptions on likely consumer behaviour, our central estimate is that around R44bn could be withdrawn between September and December this year and a further R34bn in 2025,” it said.
“We believe the lift in spending is likely to be modest for two reasons. The R44bn will be subject to tax at workers’ marginal personal income tax rate, leaving only R36bn by our estimate. Moreover, given clear signs of debt distress in some households, some withdrawals could flow into lowering debt commitments. In our baseline scenario, we assume that in 2024, the R36bn will be split evenly between spending and cutting debt.”
The lender has pencilled in household consumption spending growth of 0.5% for 2024, improving to 1.9% in 2025.
Stanlib senior economist Ndivhuho Netshitenzhe said implementation of the two-pot system would provide additional economic stimulus, with the magnitude depending on uptake of the available funds and how they were used.
“We are assuming a relatively conservative withdrawal of R50bn, which would equate to a R40bn after-tax boost to consumers’ disposable income (assuming an average marginal tax rate of 20%).
“Household savings have been negative for the last six quarters, with net household savings at -0.9% of disposable income in the first quarter of 2024. Allowing withdrawals from contractual savings will further decrease SA’s savings rate. The reduction in savings will decrease the pool of funds available for investments, causing private sector fixed-investment growth to decline,” Netshitenzhe said.
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