Forecasting the performance of the SA economy during 2025 is the easiest thing to do. At the start of each year all that is required is to shave about a third off the government’s latest GDP growth forecast, which is found in the previous year’s medium-term budget policy statement (MTBPS).
The 2019 MTBPS admitted: “Over the past nine budget cycles government has overestimated GDP growth in its forecasts.” Every year the National Treasury was overestimating the benefits for the economy of its structural reforms and underestimating the negative effects of austerity on GDP growth. During the course of each year the Treasury and economists reduced their GDP growth forecasts.
From 2009 to 2023 SA had an annual average GDP growth rate of 1.2%. By comparison, 155 emerging and developing economies cruised without much effort to a 4.4% annual average GDP growth rate during the same period. Emerging and developing Asia (30 countries) grew by 6.3% a year. For an emerging market that is not at war, SA’s chronically low GDP growth rate is unique.
From the fourth quarter of 2008 to the third quarter of 2024 the labour force grew by 8.5-million people, but the economy created just 2.2-million jobs, of which only 1.4-million were in the formal sector. The number of unemployed people increased by 6.3-million to 12.2-million. The unemployment rate soared to 41.9% from 28.7%.
As I have always said, government of neoliberal unity (GNU) vibes and the end of load-shedding are not enough to lift the economy. GDP growth actually declined by 0.3% during the third quarter of 2024 and the print for the full year will be closer to 0.7%, compared with a forecast of 1% in the 2023 MTBPS.
Though nobody knows what he will do when he becomes US president, the consensus is that Donald Trump’s economic policies — tariff increases, mass deportations of immigrants and tax cuts — will be inflationary. The Federal Reserve may keep rates “higher for longer”, and if the dollar’s recent strength continues the rand could trend sideways for most of the year.
As usual, there will be sluggish GDP growth in Europe due to austerity policies. China will achieve a likely GDP growth target of “about 5%” during 2025. But there will be limited gains for international commodity prices since the sources of Chinese growth have changed. According to the IMF, the world economy and emerging markets will grow by 2.8% and 4% respectively during 2025.
The 2023 MTBPS has forecast 1.6% GDP growth during 2025. But this forecast is based on implausible increases in consumption spending and gross fixed capital formation, a measure of investment. SA consumers will not suddenly splash out because of minuscule declines in the annual inflation rate and interest rates. The Reserve Bank has forecast that the inflation rate will fall to 4% in 2025 from 4.5% in 2024.
The words “structural reforms” first appeared in the 2012 Budget Review. But they will continue to disappoint because renewable energy investment — the star act of the reforms — will decline during 2025 as companies and households cut back on spending because of the end of load-shedding.
At Transnet there will be no private sector investment in ports and rail during 2025. It is difficult to understand the private sector’s cultish support for structural reform, despite so much evidence that they cannot deliver higher GDP growth and create more jobs.
During 2025 GDP growth will be 1.2%, the same as the annual average of the previous 16 years. The number of unemployed people will increase by more than 500,000 as the labour force grows by in excess of 700,000 and the economy creates fewer than 200,000 jobs. By the end of 2025, GDP per capita will be lower than it was in 2007.
SA cannot continue on this doomsday trajectory. The time has come for alternative policies to the failed austerity policies and structural reforms.
• Gqubule is research associate at the Social Policy Initiative. He writes in his personal capacity.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.