Sentiment around policy certainty in South Africa has deteriorated even further, which confirmed the country’s slow but uneven economic recovery.
The North West University (NWU) Business School Policy Uncertainty Index (PUI) for the fourth quarter of 2024 unexpectedly went much further into negative territory to 65.7, compared to 53.5 in the third quarter (baseline 50).
The NWU said that this elevation in the PUI was the outcome of the cumulative impact in the final quarter of 2024 of a number of negative factors that, on balance, outweighed the positive ones in the last three months.
According to the NWU, a cross-cutting number of internal and external events therefore converged to shift economic perceptions in the fourth quarter of 2024.
However, NWU Business School economist Prof. Raymond Parsons said that although the PUI was currently further in negative territory, it did not obscure or sideline the underlying positive trends in the economy.
Parsons said business and consumer confidence have been boosted in recent months by factors such as much lower inflation, the easing of interest rates, heavy withdrawal of pension funds under the ‘Two-Pot’ system, the cessation of Eskom load shedding and the formation of the Government of National Unity (GNU).
He noted that the South African Reserve Bank (Sarb) recently said that household spending was doing most of the ‘heavy lifting’ in South Africa’s improved growth prospects.
“Nevertheless, an explanation of the rise in the 4Q 2024 PUI lies in the cumulative and combined impact of the five broad considerations that strike a cautionary note at this juncture,” Parsons said.
“Externally, the intended foreign and tariff policies of President-elect Donald Trump have now injected a powerful and pervasive element of uncertainty and unpredictability into the world economy and also for SA in 2025.
“Internally, we must not underestimate the impact of the disappointing 3Q 2024 GDP growth figures. It may be this bad news that the 4Q PUI is also capturing. It highlighted the extent to which, even with the bad agricultural figures stripped out, the rest of the economy remained in a slow and uneven cyclical upswing. SA is therefore still in the foothills of economic recovery.”
Following the 0.3% decline in the third quarter, gross domestic product (GDP) growth is now projected to only be about 0.6% instead of around 1% in 2024 and about 1.6% next year.
Parsons said having to further trim already modest growth prospects was not welcome news, given SA’s well-known socioeconomic challenges.
He said the loss of exports reflected in the third quarter growth figures suggested that logistical networks, that is transport, were still not performing well and still weakening business’ global competitiveness.
“In 2025, South Africa also needs to be seen to begin resolving its water supply problems. Although the risks of load-shedding have receded, there remains Eskom’s huge tariff application for 2025 and subsequent years and their implications for the costs of doing business in South Africa,” Parsons.
“Fixed capital formation is a lagging indicator. A recent Stanlib survey confirms that South African corporates have been extremely cautious so far when investing in their local operations.
“The Nedbank survey of capital expenditure project listing (August 2024) indicated that the pickup in capital expenditure plans identified in 2024 would likely materialise in 2025, although there remained risks to the outlook. Fixed capital formation, especially in a slow and uneven economic recovery, inevitably means that the resumption of major fixed investment will take longer depending on (a) the rate at which the markets are expanding to absorb existing spare capacity and (b) the success of SA’s efforts to attract new investment capital and become a preferred investment destination.
“The perception that the GNU needs to develop more traction in 2025 in implementing urgent growth-friendly economic reforms.”
Parsons said that elevated policy uncertainty was reversible if the right steps were taken with the domestic policy instruments that are under South Africa’s control.
He said if setting and implementing the GNU agenda was one of the strategic themes of 2025, then staying on the right economic track was another crucial one.
“Compared with 12 months ago, 2025 promises to be a relatively good year for the economy in which the economic and political tailwinds outweigh any headwinds,” he said.
“The challenge in 2025 is to build on the better short-term business confidence and convert it into long-term investor confidence. In a nutshell, short-run optimism must be transformed into long-run commitments to underpin sustained job-rich growth.”
BUSINESS REPORT