South Africa - Downbeat consumer spending and investment growth contrast with improving exports and pre-election government spending

A post-election boost to private sector sentiment will give way to lackluster activity through 2025

Companies should prepare for muted demand dynamics across industries and customer segments that will last until at least the May 2024 elections. There will likely be a modest improvement in private sector sentiment that will boost demand as political uncertainty eases in Q4. However, firms should ensure their goals and market assumptions reflect the country’s somber growth outlook over the coming years. This will necessitate preparing for intensifying competition and persistent price sensitivity among both public and private sector customers. Meanwhile, financial and operational risks will remain elevated amid rand volatility, relatively high interest rates, and worsening crime rates that will raise costs and squeeze margins. Raising marketing spending to capture market share will help firms achieve their commercial goals, as will focusing on resilient industries and customer segments including ICT, financial services, private sector healthcare, and high-income households.


  • GDP grew by 1.3% YOY in Q4 2023, beating expectations and accelerating from stagnation (i.e., 0% YOY) registered in the preceding quarter. However, this improvement conceals the fact that on a full-year basis, growth slowed sharply from 1.9% in 2022 to 0.7% YOY in 2023, largely because of the economy’s weak performance in Q1 and Q3 2023. 
  • The improvement in Q4 was led by stronger export growth (from +2.3% YOY in Q3 to +5.5% YOY in Q4), and government spending (from +2.6% YOY to +3.2% YOY). However, consumer spending slowed from +0.8% YOY to +0.6% YOY, the worst performance since Q1 2021. Gross domestic investment remained in a deep slump, registering -3% YOY in Q4 after -13% YOY in Q3.
  • The strongest-performing industries in Q4 included transport, storage, and ICT (+4% YOY), personal services including healthcare (+3.9% YOY), mining (+3.5% YOY), financial services and real estate (+3% YOY), and manufacturing (+1.8% YOY). In contrast, a deep contraction occurred in agriculture (-34.6% YOY), and declines in wholesale and retail trade and hospitality (-2.3% YOY) and construction (-3.9% YOY) persisted after similar contractions in Q3.

Our View

The outlook remains somber, with the economy forecast to grow by 0.9% YOY in 2024 and 1.1% YOY in 2025. Disinflation—which will aid consumer purchasing power and allow the South African Reserve Bank to cut interest rates from 15-year highs likely from Q3 or Q4 2024—and resilient service activity will likely prevent the economy from falling into recession this year. The May 2024 election will dampen consumer and investor sentiment in Q2 and Q3 2024, although political tensions are likely to ease toward the end of the year, providing a short-term boost to private sector activity. However, deep-rooted structural economic vulnerabilities will contain the economy’s potential over the coming years. The protracted electricity crisis will not abate until the late 2020s, hobbling industrial activity. High unemployment will constrain consumer purchasing power, and strained public finances will result in the gradual expansion of austerity measures in 2025 and 2026, limiting the government’s capacity to stimulate the economy.

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