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Frederick Mitchell, Chief Economist | Aluma Capital (Pty) Ltd
Frederick Mitchell
January 23, 2025

View on Demand in the Economy

Retail Sales Performance

November 2024

In November 2024, South Africa’s retail sales rose by 7.7%, surpassing the 5.5% forecast, indicating a resurgence in consumer demand, particularly during Black Friday. The SACCI Business Confidence Index increased, and potential interest rate cuts could further boost spending. Overall, this positive trend supports economic growth as the country moves into 2025.

Retail sales in South Africa exceeded market expectations in November 2024, rising by 7.7% year-on-year and comfortably surpassing the predicted 5.5% increase. This stronger-than-expected growth signals a moderate resurgence in consumer demand, particularly during the “Black Friday” shopping period, suggesting an improvement in consumer finances and increased spending.

The SACCI Business Confidence Index also saw a boost, rising from 114.2 to 118.1 points in November, further supporting growth in demand. Additionally, lower consumer inflation and a potential interest rate reduction from the South African Reserve Bank in early 2025 could further enhance demand.

Key drivers of growth in retail sales included:

  • General Dealers: Up 11.9%, contributing 5.2 percentage points to overall growth.
  • Household Furniture, Appliances, and Equipment: Increased by 9.5%, adding 1.7 percentage points.
  • Textiles and Clothing: Grew by 9.5%, contributing another 1.7 percentage points.

However, the hardware, paint, and glass retail category contracted by 4.3%, reducing total growth by 0.4 percentage points.

The encouraging retail growth is a positive sign for the economy, particularly as fourth-quarter economic data is released. The interest rate reduction in September appears to have provided relief for households and is beginning to show benefits. Moreover, withdrawals from the two-pot system have positively impacted demand from October through Black Friday at the end of November 2024.

Sustaining this momentum through December 2024 and into 2025 will be crucial, as consumer demand remains a key driver of economic growth in South Africa.

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More Coverage

Budget Speech 2025

A Balancing Act
Much has happened in the last twelve months as well as the last month since the postponement of the February 2025’s budget. The big talking point and “bone of contention” was the mooted 2% increase in VAT. This increase was met with fierce resistance and made “balancing the budget” quite difficult, as the government has to decide between increasing taxes of cutting expenditures, leaving the Government of National Unity (GNU) between a “rock and a hard place” as it currently stands. The increase in VAT or other taxes sprout from the various expenditure items the government announced or want to implement which among other things include the National Health Insurance (NHI), a transformation fund and continuation of the Covid-19 relief grant and the possible introduction of a Basic Income Grant (BIG).

A View on Company Profits

2024 Q4
Company profitability is vital for investors and the government. In South Africa, the Gross Operating Surplus (GOS) indicates positive growth, with profits surpassing inflation in late 2024. Notable gains in the Agricultural sector (68.8%) contrast with modest growth in Mining and Personal Services, reflecting an optimistic economic outlook post-election.

A Sticky Affair

The South African Budget Speech Postponement
The Laffer Curve is an economic theory that describes the relationship between tax rates and tax revenue. Proposed by economist Arthur Laffer, the curve suggests that there is an optimal tax rate that maximizes government revenue without discouraging productivity, investment, and economic growth. The central idea is that increasing tax rates beyond a certain threshold can lead to diminishing returns; higher taxes may disincentivize work, entrepreneurship, and investment, ultimately reducing the overall tax base.

GDP, Economic Growth and Inflation

2024 Q4
The South African economy showed resilience with a 0.6% growth in the fourth quarter of 2024, despite challenges. Key sectors like Agriculture and Finance thrived, and improved consumer demand signals optimism for 2025. With continued market confidence and government reforms, there is potential for significant economic advancement ahead.

Private Sector Credit Extension (PSCE)

January 2025
In January 2025, credit demand rose by 4.6%, exceeding expectations, although overall demand is still modest. Interest rate cuts are expected to enhance property and asset purchases as disposable incomes improve. As consumers increasingly rely on credit, overall demand for goods and fixed assets is poised to rise throughout 2025
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