Who could have imagined we would already be entering the second month of 2025 when most feel we are still recovering from 2024 — a tumultuous year that left asset price volatility in its wake?
The year 2024 could be characterised as one of significant change, marked by escalating geopolitical tensions, a synchronised interest rate-cutting cycle across global central banks and more than 70 nations going to the polls. In South Africa, the ANC lost its majority and conceded defeat, resulting in the formation of a government of national unity (GNU). And, in the most anticipated election, Donald Trump made the greatest comeback in the history of US politics by winning the presidential race, ushering in a new era of uncertainty with his policies.
Many may also remember how we entered 2024 on an optimistic note — believing we would finally win the battle against inflation. The hope was that global central banks would dial back on interest rates as early as the first quarter of the year. The euphoria didn’t last long when this proved a difficult task to accomplish as inflation in the US reared its stubborn head again. It forced policymakers, in their forward guidance, into moderating market expectations.
The South African Reserve Bank (Sarb) also decided to take a cautious approach to its monetary policy easing stance, citing an uncertain global political and inflation backdrop. Sarb has, over the last year, cut interest rates by a cumulative 75 basis points.
Trump’s policies, particularly import tariffs, are seen as a global headwind, potentially leading to prolonged inflation and higher interest rates in the US given a robust economic backdrop. The strong US dollar and higher-than-expected interest rates pose risks for emerging economies with substantial US dollar debt obligations.
While South Africa does not face the same level of concern under Trump’s administration, the economy can no longer rely on external handouts, preferential treatment, lower tariffs or international funding, and monetary policy alone will not be enough to change the path to prosperity.
South Africa’s economic growth will increasingly depend on the successful implementation of government growth reform policies, supported by private sector participation and initiatives such as Operation Vulindlela, which has moved into its second phase of supporting local government and municipalities with improving basic service delivery.
As we look ahead to 2025, and also in anticipation of finance minister Enoch Godongwana’s budget speech to be delivered in a few weeks, we are cautiously optimistic but do anticipate a gradual uplift in GDP growth
Economic activity in 2024 began on a subdued note, with real GDP contracting 0.1% in the first quarter. However, as the year progressed, we observed a gradual and steady recovery, with GDP growing 0.4% in the second quarter. In the third quarter, GDP contracted by 0.3%, primarily due to a reported 28.8% decline in agricultural output.
As we look ahead to 2025, and also in anticipation of finance minister Enoch Godongwana’s budget speech to be delivered in a few weeks, we are cautiously optimistic but do anticipate a gradual uplift in GDP growth. The improvement is expected to be driven by a further easing in interest rates, significant cash injections from the two-pot retirement system withdrawals driving an increase in consumption, the stabilisation of electricity supply and ongoing progress of structural reforms in critical infrastructure areas such as railway transport, water & sanitation and ports.
These factors are projected to boost both private and business confidence, with fixed investment expected to drive the economy alongside consumer spending in the medium term.
While South Africa will not be entirely insulated from global events, we are optimistic that the renewed emphasis on implementing growth reforms with a focus on infrastructure improvements, coupled with increased private sector involvement and enhanced oversight and accountability from the GNU, will serve as a catalyst for transforming the domestic economy. This approach aims to elevate the economy to a more positive and sustainable growth trajectory, surpassing historical performance.
• Moroka is head of domestic equities at Melville Douglas, boutique fund manager for the Standard Bank Group
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