I argued on these pages in August that the post-government of national unity (GNU) rally in SA assets would be durable.
My view was premised on the expectation that growth would improve, supported by the removal of electricity supply constraints and an improvement in confidence bolstered by political stability and cyclical tailwinds. I made the argument then that the structural reform would be a boon for the country, and that asset price shifts would reflect this.
We have subsequently had a terrible GDP print, and the latest GDP forecasts, from official and private sector forecasters, are underwhelming.
Stats SA says the economy shrank 0.3% in the third quarter. Forecasters expect growth will lift to about 2% in 2027, versus 0.7% in 2023. The IMF’s growth expectations are even more subdued. The fund expects growth to drift up to 1.8% by the end of the decade.
Many have looked at these prints with dismay. Does this signal that the much hoped-for growth is not coming? Have we put our hopes on only marginally useful reforms and political change?
SA is a small, open economy, and its economic outcomes are highly correlated to what happens in the rest of the world. Unfortunately for us, the global economy is stagnant.
The IMF forecasts that global growth will remain at 3.1%-3.2% into the end of the decade. This compares with an average growth rate of more than 4.2% in the decade to the 2008 financial crisis and 3.7% in the decade before the 2020 Covid-19 crisis. Ours is not a world that is firing on all cylinders, and that will have an adverse effect on SA.
The differential between global and SA forecast narrows substantially over time. In 2023 global growth was a still miserable 3.3% and SA grew by 0.7%. Our growth rate lagged global growth by 2.6 percentage points. Forecasters now expect this gap to narrow to 1-1.6 points, depending on who you ask. This might not seem a large improvement, but it is. A sustained one percentage point improvement in GDP would have growth 10 points higher in seven years.
Moreover, SA is a highly cyclical economy, which tends to do better when global growth is strong, and worse when the rest of the world is under pressure. Expectations for global growth are low, which will weigh on SA more. Until we have another global up cycle, it will be difficult to judge SA’s growth dynamic and the effects of structural reform.
The other factor weighing on SA’s growth is the shift in the balance of the global economy. While the headline numbers for global growth show weakness, the mix is even more problematic for this country. While developed economy growth was just less than 2% over the past two years, this has been biased towards the US (2.9%) while Europe has been in a slump (0.6%).
Unfortunately, SA exports more to Europe than it does to the US. At just less than 5%, Chinese growth has also been slowing and is projected to slow even more in the coming years. China is the single most important country for SA’s exports. This slowdown in countries to which we export will continue to weigh on local growth in the coming period.
I argue then that though the numbers are not great, we should not despair. We are on a good wicket here and reforms will be a big boon for our economy. We have actually seen the benefit of structural reform in the forecast, but the positive story is obscured by the realities of a miserable global backdrop.
Even then a recovery in global growth is likely to benefit SA more than what we expect. Chinese authorities are again threatening us with more stimulus, which should be announced in the new year. They first started talking about this in September but have consistently underwhelmed in the detail. This is a potential tailwind for SA’s growth going into 2025.
• Lijane is global markets strategist at Standard Bank CIB.
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