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Frederick Mitchell, Chief Economist | Aluma Capital (Pty) Ltd
Frederick Mitchell
March 4, 2025

South African Economic Performance

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.

The South African economy grew by 0.6% in the fourth quarter of 2024, slightly below market expectations of 1.0%. This modest growth comes despite positive economic indicators, interest rate reductions, and improved confidence levels during this period. Remarkably, electricity supply constraints did not impede performance in the last quarter of 2024.

Among the ten sectors, five showed annual growth. Notably, the Agricultural and Finance sectors increased by 3.7% and 4.1%, respectively. However, the Transport and Construction sectors contracted by 5.1% and 2.2%.

On a positive note, manufacturing saw a quarterly growth of 0.2%, supported by favorable market sentiment reflected in the Purchasing Managers’ Index (PMI) and reduced electricity supply issues, marked by a 5.7% growth in the electricity sector. The finance sector, the largest contributor to GDP, grew by 1.1%, similar to the previous quarter’s increase of 1.2%, contributing 0.3 percentage points to the overall growth for the fourth quarter.
The trade sector also saw improvement; after contracting by 2.2% quarter-on-quarter in the third quarter of 2024, it notably expanded by 2.0% in the last quarter. Increased consumer demand following withdrawals from the “Two-Pot” system, Black Friday sales in late November, and interest rate cuts in September and November contributed to this uptick.

Overall, South Africa’s economic growth for 2024 is estimated at 0.6%, a slight decrease from 0.7% in 2023, which remains inadequate to address the high unemployment crisis. However, with increased market optimism heading into 2025, less frequent load-shedding, and a 50-basis point interest rate cut in January 2025, there is potential for improved economic activity.

Challenges persist for businesses, and it is crucial for the government to deliver policy clarity and concrete progress on previously announced structural reforms. Diplomatic tensions between Pretoria and Washington, the suspension of U.S. aid to South Africa, and potential impacts on the AGOA agreement threaten South African businesses exporting to the U.S. Addressing these critical issues is essential to boost business confidence, which is necessary for driving significant economic growth in the coming months—a need that South Africa cannot overlook.

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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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