South Africa's economic struggles persist amid negative GDP growth and low investment

6 Jun 2024

Further to the 1Q 2024 Gross Domestic Product (GDP) figures released by Stats SA, North-West University Business School economist, Raymond Parsons says the negative GDP growth figure of -0.1% q-o-q again reflects how difficult it has been for the economy to gain momentum in the recent past.

Source: Reuters.

Although GDP growth may yet reach about a modest 0.9% in 2024 as a whole, total GDP in 1Q 2024 is in fact lower than the peak reached in 3Q 2022. South Africa’s continued disappointing growth performance remains the most significant feature of SA’s macroeconomic performance.

The persistent decline in per capita income over several years means that the nation as a whole has become poorer. South Africa needs to break out of its ‘low-growth trap’ in order to more successfully tackle the triple challenges of unemployment, poverty and inequality.

It is also concerning that gross fixed capital formation (GFCF) – a major driver of job-rich growth – again declined, for the third consecutive quarter, by 1.8%.

One of the key ingredients for sustained rapid growth is a high level of fixed investment, ideally at 30% of GDP, a critical target outlined by the National Development Plan. It is currently at about 15% of GDP, which remains inadequate for South Africa’s desired economic performance.

Looking further ahead, however, with load shedding in abeyance for now, Nedbank also previously expected GFCF to accelerate in 2025 based on renewable energy investment, stronger global growth and firmer commodity prices.

These outcomes, nonetheless, hinge to a large extent on investor confidence being supported by a predictable and certain macroeconomic framework.

SA’s latest growth statistics send a strong message in the aftermath of the recent elections. These are the economic imperatives that key political leaders currently engaged in crucial coalition talks must visibly incorporate into their agenda of discussions.

The outcome of present coalition negotiations needs to create the necessary political stability and effective governance that support investment, growth and job creation.

South Africa needs growth of 3% or more for a bigger, stronger and better economy. A clear and predictable policy environment then enables businesses to take a long-term perspective on growth and development.