South African economic outlook

In the 2024 national elections, the African National Congress, in power since 1994, received only 40.2% of votes.¹ Unable to secure a parliamentary majority, it formed a coalition government with the centrist and pro-market Democratic Alliance—its main opposition—as well as other small parties.

Arguably, this could be the best outcome for the economic future of the young democracy.² The coalition has ensured policy continuity and boosted international investor sentiment—amid an improved global economic landscape and the start of the global rate-cutting cycle. Furthermore, the country’s sovereign risk premium improved,³ and South Africa’s 10-year bond yield dropped to below 10%—its lowest in almost three years. The rand appreciated to its strongest level against the US dollar in almost two years in September 2024 (although it lost some of these gains on account of the US dollar strengthening post US elections),⁴ while stocks listed on the Johannesburg Stock Exchange had their strongest third quarter in over a decade. Moreover, South Africans celebrated almost three successive quarters of no loadshedding, following years of intermittent power outages.⁵

Even though investor sentiment and domestic confidence have improved, structural reforms and growing fixed investments are still imperative for South Africa’s long-term prosperity and key to achieving sufficient GDP growth to support the economy. This takes time. Unexpectedly, real GDP growth fell by 0.3% in the third quarter of 2024, which also lowers the expected growth outcomes for 2024 to less than 1%.

South Africa began 2024 on a weak front, with no growth in the first quarter. Thereafter, growth improved to 0.3% in the second quarter. Recent data from the third quarter has shown real GDP growth dipping to 0.3% despite cautious optimism.

Real GDP contraction was driven by a decline in the agricultural sector, which fell 29.6% year on year in the third quarter of 2024. Drought plagued the production of field crops (maize, soybeans, wheat, and sunflower). Adverse weather conditions also hindered the production of subtropical fruits, deciduous fruits, and vegetables. The electricity, gas, and water sector has been the fastest-growing industry at 1.6%, followed by finance, real estate, and business services at 1.3%.⁶

Forecasts for 2025 remain somewhat more optimistic. Inflation has eased to levels firmly within the inflation target range set by the central bank and together with further expected interest rate cuts in 2025 could boost consumer activity. Real GDP growth is expected to be approximately 1.7% in 2025, and to average only 1.8% per year from 2025 through 2027.⁷ This does not compare well with the International Monetary Fund’s 4% 2025 projection for emerging and developing economies, and even falls below the outlook for advanced economies of 1.8%.⁸

The new coalition government has confirmed its commitment to tackle the fiscal deficit, which is expected to widen over the current fiscal year (2024 to 2025) to 5% of GDP, and also see debt as a share of GDP stabilize in the next fiscal year at a ratio of 75.5%. Further, the GNU is continuing to address supply-side constraints via its reform program, Operation Vulindlela.⁹ Initiatives in energy, logistics, water, data, and e-visas continue with further focus areas aimed at enhancing local government capacity, tackling spatial inequality, and investing in digital public infrastructure,¹⁰ with the inclusion of youth unemployment (more than 43.2% of those between 15 and 34 years of age are unemployed, higher than the country’s official unemployment of 32.1%) as a priority area.¹¹

Infrastructure investment through capital-based expenditure has recently been emphasised by government. Over the past two decades, gross fixed capital formation as a share of GDP in South Africa has trended below required levels. Most recently, the percentage stands at approximately 15% of GDP (2023)—equating to half of the 30% National Development Plan target.¹²

While faster implementation of such reforms will contribute to boosting confidence and unlocking fixed investment, government is also looking at new ways to attract private sector investment for public sector projects. Focus is on project preparation and creating a pipeline of bankable projects (a long-standing challenge in South Africa), strengthening public-private partnerships through reforming their frameworks, as well as using risk-sharing initiatives and financial instruments to unlock greater private funding. Legislative reforms to public-private partnerships and the creation of new infrastructure-financing mechanisms are other areas of focus. Yet, these will need to be accompanied by a focus on increasing the quality of governance, building a more capable state while addressing the leadership vacuum at various levels of government.

Nevertheless, after underperforming for more than a decade, South Africa has a window of opportunity. By utilising the foundation stone of reforms, better governance, and growth-enhancing infrastructure spending, a society that is more inclusive, job-creating, and sustainable can be built.¹³

This article was previously published on Deloitte Insights.

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¹ Economic Intelligence Unit, “South Africa’s election heralds major realignments,” June 3, 2024. 
² Velani Ludidi, “Then there were 10—unity government hits double digits while talks continue over Cabinet posts,” The Daily Maverick, June 23, 2024.
³ National Treasury, “Medium-term budget policy statement,” Oct. 30, 2024.
⁴ Economic Intelligence Unit, “South Africa’s election heralds major realignments,” June 3, 2024.
⁵ Eskom, “Loadshedding suspension continues after 191 days of uninterrupted power supply, achieving R11.51 billion in diesel savings year on year,” press release, Oct. 4, 2024.
⁶ Statistics South Africa, “Gross domestic product—Third quarter 2024,” Dec. 3, 2024.
⁷ South African Reserve Bank, “Quarterly bulletin–December 2024,” Dec.13, 2024.
⁸ Deloitte calculations based on: International Monetary Fund, “World economic outlook database,” accessed Jan. 3, 2025.
⁹ Republic of South Africa, “Operation Vulindlela,” accessed Nov. 14, 2024. 
¹⁰ Ibid.
¹¹ Bureau for Economic Research, “Impumelelo Economic Growth Lab,” Oct. 2, 2024.
¹² Statistics South Africa, “Gross domestic product—Third quarter 2024.”
¹³ National Treasury, “Medium-Term Budget Policy Statement 2024.”