The downside
Although South Africa recorded a positive GDP growth rate in 2024, the average real growth rate (year-on-year) over the past six quarters is a paltry 0.5%. Scrutiny of the GDP data confirms the negative impact of the strange decision by the Monetary Policy Committee (MPC) of the Reserve Bank to raise interest rates to their highest levels in 14 years, which more or less put paid to the initial robust economic recovery from the Covid pandemic.
During the eight quarters between the recovery from the worst pandemic and when the excessively restrictive monetary policy started to bite, the economy grew at a relatively impressive average real rate of 1.8%. Although a rate-cutting cycle commenced somewhat belatedly in September 2024, the country’s real benchmark lending rate is still way too high – 7.8%, one of the world's highest. Otherwise, February reminded the government that Eskom’s long-standing problems in delivering energy security at affordable prices are far from over.
The upside
Vat rate hike averted
News headlines during the third week of February were dominated by the first-ever postponement of the tabling of South Africa’s national budget on the day it was scheduled for – evoking wide-ranging commentary from the full spectrum of society.
However, the clinical capital market reaction provided a sobering reflection on the postponement's implications (due to the DA’s refusal to approve the proposed 2% hike in the VAT rate). During the two days following the budget postponement, the rand exchange rate vs. the US dollar and the JSE all-share index strengthened by 0.6%—a marginal change but an explicit confirmation of the positive undertone of this (non-) event.
The commentary from business leaders was overwhelmingly positive, as it demonstrated the effectiveness of the government of national unity (GNU) in preserving truly democratic principles relating to the country’s fiscal affairs.
Rand outperforms the big guns.
Over the past year, only one currency of note has proven more resilient against a resurgent US dollar than the South African rand. Between 29 February 2024 and 28 February 2025, the rand strengthened by 3.2% against the world’s dominant currency, with only the Malaysian ringgit managing a better performance.
In the process, South Africa’s currency has left the Euro, the British pound and all the currencies of the other British nations floundering. The US dollar’s bull run towards the end of 2024 was caused mainly by expectations of higher economic growth following the Republican Party’s victory in the presidential election. A stronger US economy may slow down the declining trend of inflation, which could limit the extent and regularity of further interest rate cuts by the Federal Reserve.
Although the yield on 10-year US Treasury bonds has declined marginally from its recent high of almost 4.8%, it is more than 240 basis points higher than three years ago and, at 4.2% on 28 February, remains attractive to fund managers around the globe. Until interest rates in the US decline further, the greenback will likely stay in demand, and its recent decline may have been a temporary setback.
JSE goes from strength to strength
Companies on South Africa’s premier equity exchange had performed admirably since the end of 2020 when the worst fallout from the COVID lockdowns had passed. The all-share index (Alsi) hit an all-time high of 89,000 on 18 February before a modest retracement to just below 86,000 at the end of the month.
Over the past six years, the Alsi value has increased at an annual average rate of 7.6%. This, combined with the current dividend yield of Satrix (a proxy for the Alsi) of 2.4%, explains to a large extent the achievement of double-digit returns by investment products slanted towards local equities. Combined with high bond yields, these trends suggest that a wealth effect amongst high-income earners has kept the economy alive.
Job creation expands in 2024
Following a welcome jump in employment creation during the second half of 2024, the total number of jobs in the South African economy ended the year on a high note, breaching the 17 million level for the first time. The financial intermediation, insurance, real estate, and business services sector was responsible for most of the employment created in 2024, adding more than 300,000 new jobs.
The latest quarterly employment statistics published by Statistics SA predictably show a relatively low unemployment rate for graduates and people with other tertiary education: 8.7% and 19.3%, respectively (at the end of 2024). In both cases, these rates declined marginally last year. Hopefully, progress in repairing and expanding the country’s infrastructure will stimulate job growth in 2025.
On Balance by Dr Roelof Botha deliberately emphasises positive news, which often emphasises the resilience of the South African economy and the immense scope for new business opportunities.
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