While South Africa’s economic outlook seems to be on the up, some mixed factors would likely keep the economy sluggish throughout the year, Cape {town} Etc reports.
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The Nedbank Group Economic Unit stated in its latest Guide to the Economy report that local activity improved slightly from the quarter-on-quarter contraction of 0.1% in Q1 2024 and that producers and exporters benefitted from reduced loadshedding and marginal gains in rail and port services.
It is the second time the country has managed to avoid a technical recession. A technical recession is two consecutive quarters of negative growth.
Due to the slight improvements between the first quarter of 2024 and the expected outcome of quarter two, South Africa might side-step a recession.
Despite this positive outlook, consumers are feeling the pinch more than ever due to rising prices and higher interest rates. ‘Economic activity contracted in Q1 2024, pressured by continued loadshedding and weaker global and domestic demand,’ the group said.
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According to the group, exports could recover later this year as global demand increases and commodity prices improve. A decreased domestic inflation should help boost household incomes and prompt the South African Reserve Bank (SARB) to start reducing interest rates.
It also noted that investment growth is expected to slow down as companies spend less and cut costs to restore their profitability. In addition, it forecasts that government spending growth will be modest due to ongoing fiscal consolidation.
These mixed conditions are likely to continue for most of the year, resulting in a stagnant economy. However, things should start to improve by the end of 2024.
‘Altogether, real GDP is forecast to grow at a slightly faster pace of around 0.9% in 2024,’ the group said.
‘Against this backdrop of sluggish domestic demand, inflation is forecast to ease further, but only slowly, reaching SARB’s 4.5% target on a sustainable basis around the second half of 2025.’
‘The upside risks to the inflation outlook stem from threats posed by the ongoing geopolitical conflicts, and the rand’s underlying vulnerability to any abrupt shifts in risk sentiment driven by changing US interest rate expectations.’
The group expects the SARB’s Monetary Policy Committee (MPC) to start cutting rates in September, followed by another reduction in November, which could take the prime rate to 11.25% by the end of 2024.
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Report: South Africa dodges recession despite worst loadshedding year
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