South Africa Economic Outlook - November 2024

South Africa’s macroeconomic outlook at the start of 2025 is notably better compared to a year ago

PwC Strategy&^[1] is pleased to share its first South Africa Economic Outlook report for 2025. In this document, entitled “Key macro themes and scenarios for 2025”, we consider pertinent issues around each of the core macro variables:

• Five risks to the currently favourable inflation outlook;
• Interest rate prospects and upcoming changes to the central bank’s inflation target;
• What the country needs to achieve faster economic growth in 2025;
• The rand’s susceptibility to global influences (like change in US policies), and
• Workers’ concerns about climate change costing them their jobs.

^{[1] Strategy& is PwC’s global strategy consulting business, and the only at-scale strategy business inside a professional services network.} 

Consumer price inflation is forecast to average 4.5% in 2025. The South African Reserve Bank (SARB) Monetary Policy Committee (MPC) said in November 2024 that while inflation is expected to be contained in the near term, the medium-term outlook is highly uncertain due to pressures on the cost of food, electricity, water, insurance and wage settlements.

• White maize prices were 50% higher in January 2025 compared to a year earlier due to last year’s weaker crop resulting in low stocks at the time. White maize is a key ingredient in foods that are a staple of the South African diet.
• We do not yet know how much electricity prices will increase in 2025 but can venture an estimate of 10%–20%, based on how tariffs were allocated in the past. An official announcement is expected before the end of January.
• There is no comprehensive public data set covering tariffs set by the country’s Water Services Authorities, though Statistics South Africa data shows water prices have increased above the inflation rate since 2017. This is a risk for 2025 as well.
• Short-term insurers are seeing an increase in claims related to extreme weather events like floods. For transport-related insurance, the country’s deteriorating physical infrastructure is resulting in more claims for porthole damage to vehicles.
• Data from BankservAfrica shows that the take-home pay increased by an average of 9.7% y-o-y in September–October 2024. When adjusting for inflation, the real buying power of salaries increased by 5.4% y-o-y during the two-month period. The SARB is likely concerned that above-inflation salary outcomes will repeat in 2025 and cause demand-side inflation.

The rand exchange rate is also a key factor to consider when it comes to the inflation outlook. However, the rand is very unpredictable partly due to the impact of global economic and geopolitical developments on this highly traded currency. One of the key geopolitical unknowns in 2025 will be the policies implemented by the new US president. While it is expected that the new administration in Washington will continue with key trade policies like the Africa Growth and Opportunity Act (AGOA), there are risks to South Africa’s eligibility for the programme. There is also the risk of President Donald Trump implementing his proposed 10%–20% tariff on all US imports, which could reduce demand for South African exports to the world’s largest economy. This, in turn, would weigh on the value of the rand. At present, we expect the rand to average R18.82/$ this year from a mean of R18.32/$ in 2024.

Moving to monetary policy, we expect the MPC to reduce interest rates by another 50 basis points during 2025Q1 as the central bank aims to keep inflation near the middle of its 3%–6% target range. SARB Governor Lesetja Kganyago said in November last year that the inflation target review being undertaken by the revenue bank and National Treasury “is coming to a conclusion”. While timelines are unknown, an announcement on a lowered target (potentially 3%–5%) could be made in the short term, e.g. at a coming MPC meeting (30 January or 20 March) or next month’s Budget Speech 2025. The best time to make this kind of adjustment to an inflation target is when inflation is low, i.e. like it is now.

PwC South Africa forecasts economic growth of between 0.5% (downside scenario) and 1.3% (upside scenario) in 2025, with the range reflecting the many uncertainties for the year ahead. The difference between our baseline (0.8%) and upside (1.3%) forecasts suggests there is room for some positive surprises in the short-term that could add 0.5 percentage points to economic growth next year. These positive impacts could come from:

• Low inflation, declining interest rates and rising real (i.e. inflation-adjusted) wages supporting household consumption spending.
• Business and investor confidence finding support from public-private cooperation resulting in priority economic and structural reforms implemented during 2025.
• Improved investment and efficiencies in port and railway services increasing the country’s capacity to export. Exports are essentially the importing of jobs.
• A reduction in the R300 billion tax gap—the difference between taxes legally owed and taxes actually collected—in support of greater government spending.

The South African economy is forecast to create 115,000 jobs in 2025, based on the long-term relationship between economic and employment growth. This will be notably less than an anticipated 340,000 increase in the labour force this year. As a result, the narrowly defined unemployment rate is expected to increase from an estimated 32.7% in 2024 to 33.2% in 2025. South Africa needs economic growth of at least 2.0% per annum to keep up with labour force growth and stop the ascent of the unemployment rate, and more rapid growth (at least 3.5% per annum) to make a meaningful impact on the jobless rate towards 2030.

Another challenge to the labour market this year is the threat of climate change. PwC’s Global Workforce Hopes and Fears Survey 2024 found that almost one in three (30%) of the South African respondents to the poll fear that climate change’s impact on e.g., changing customer preferences, technology obsolescence, physical impacts, etc. may cause them to lose their job. Six out of 10 (60%) local respondents expect that climate change will introduce health and safety risks at their workplace through e.g., heat stress, air pollution, exposure to hazardous conditions, etc. Nearly half (44%) of South African respondents believe that disruptions from extreme weather events or environmental changes will impact their ability to do their job. Overall, the view among many South Africans is that climate change could impact their ability to work and earn an honest income.

Key contents in this report include:

• Inflation risks: SARB highlights pressure on the cost of food, electricity, water, insurance and wages.
• Interest rate decisions: Reducing the inflation target could result in lower long-term lending rates.
• Economic growth dilemma: What we need to reach stronger momentum in 2025.
• The unemployment challenge: Slow economic growth and climate change pose risks to job creation.
• How we can help clients with economic scenarios.