South Africa economy to slow down in 2023 before stabilizing in 2024, says GlobalData

The South African economy is grappling with several challenges, including severe power disruptions, unstable commodity prices, a high unemployment rate, and external issues. Against this backdrop, South Africa’s economic growth is projected to decelerate from 1.9% in 2022 to 0.4% in 2023, before picking up to 1.3% in 2024, forecasts GlobalData, a leading data and analytics company. 

GlobalData’s recently published report, “Macroeconomic Outlook Report: South Africa,” underscores the ongoing concern of a notably high unemployment rate that is significantly affecting domestic demand conditions. The unemployment rate, which maintained an average of 33.9% in 2021 and 2022, is anticipated to further increase to an average of 34.7% for the years 2023 and 2024.

Moreover, the youth unemployment rate in the country stayed above 60% from the beginning of 2023 until July 2023. The real household consumption expenditure, which exhibited an average annual growth rate of 3.9% in 2021 and 2022, is expected to decelerate to an average of 0.9% in 2023 and 2024.

Meanwhile, Statistics South Africa data revealed that in Q2 2023, the South African economy experienced significant year-on-year growth, reaching 1.6%. This expansion was notably higher than the modest 0.2% increase observed in the previous quarter and marked the strongest growth seen since the third quarter of 2022. This improved economic performance can be linked, at least in part, to a reduction in power outages and a reduced dependence on Eskom, the power provider, for electricity demand in sectors like manufacturing and mining.

Puja Tiwari, Economic Research Analyst at GlobalData, comments: “Looking at the positive aspects, the inflation rate has been on a downward trajectory since March 2023, stabilizing at 4.8% in August 2023, falling within the central bank’s target range of 3-6%. This has had a slight uplifting effect on consumer sentiment, leading to a four-month consecutive rise in the consumer confidence index, extending up to September 2023. Business confidence has also seen continuous improvement, climbing from 98.6 in June 2023 to 99 in September 2023. These gradual improvements in macroeconomic indicators offer a glimmer of hope for a more favorable economic outlook for South Africa in 2024.”

GlobalData estimates reveal that mining, manufacturing, and utilities contributed 24.8% to South Africa’s gross value added (GVA) in 2022, followed by financial intermediation, real estate, and business activities (23.7%), and wholesale, retail, and hotels business activities (13.5%). In nominal terms, the three sectors are forecast to grow by 5.4%, 5.0%, and 5.0%, respectively, in 2023, compared to a growth rate of 6.9%, 6.2% and 6.5%, respectively, in 2022.  

In April 2023, the Ministry of Public Works and Infrastructure unveiled plans for the country’s public sector to allocate ZAR903 billion ($55.2 billion) towards infrastructure projects, anticipated to stimulate growth in the construction and related sectors. According to GlobalData’s projections, the construction sector’s GVA is expected to experience an average annual growth rate of 5.5% between 2023 and 2025.

South Africa’s economy heavily depends on the export of commodities, including minerals, coal, iron ore, agricultural products, and diamonds, leaving it susceptible to global price fluctuations and demand variations. Given the uncertainties in commodity prices and weaker international demand in 2023, the nation’s trade prospects are anticipated to be adversely affected. According to IMF forecasts, South Africa is projected to experience a slower export growth rate in 2023, expected to be around 3.6%, compared to 7.4% growth in 2022.

In terms of risk, South Africa is categorized as one of the manageable-risk nations and ranked 69th out of 153 nations in GlobalData Country Risk Index (GCRI Q2 2023). The country’s risk score on various parameters, namely macroeconomic, demographic and social structure, technology and infrastructure, and environment was higher than the risk score of the World in Q2 2023. 

Tiwari concludes: “Given the energy crisis and the uncertain commodity price environment, South Africa’s economic growth confronts substantial hurdles. To address these concerns and invigorate the economy, the government should emphasize investments in renewable energy, promote diversification of resources, and champion innovation to bolster economic resilience and long-term sustainability.”