Finance Minister Enoch Godongwana has painted a stark picture of South Africa’s economic future, warning that growth will not accelerate quickly enough to reduce the nation’s soaring unemployment rate in the coming three years, despite signs of recovery from structural reforms.
This was the bittersweet message from Godongwana as he tabled the 2024 Medium-Term Budget Policy Statement (MTBPS) before Parliament yesterday.
The National Treasury’s adjustments yesterday have further dimmed hopes, lowering the 2024 economic growth forecast to 1.1%, down from the earlier 1.3%.
This was in line with the International Monetary Fund (IMF) forecast issued last week during the release of the World Economic Outlook for October, which was an upward revision from the previously forecast 0.9% gross domestic product (GDP) growth for 2024.
The expectation underscored a sluggish economic performance, largely attributed to stop-start growth patterns and persistent inflation pressures that have characterised the first half of the year.
“Real GDP growth of 1.1% is projected for 2024, and this will rise to an average of 1.8% over the medium term,” Godongwana said.
“With successful implementation of the reform agenda, mainly through Operation Vulindlela, this outlook can improve by at least 2% annually beyond the current medium-term framework.”
While headline inflation is projected to stabilise within the target range of 3–6% as it cools to its lowest levels in over three years, the first half of 2024 saw heightened consumer prices and an alarmingly high food inflation rate.
Godongwana expressed cautious optimism at the partial recovery of the economy, crediting the stabilisation of the global environment, the implementation of structural reforms, and an uninterrupted electricity supply as essential factors leading to improved investor confidence in the newly formed Government of National Unity (GNU).
At the heart of South Africa’s economic aspirations lies Operation Vulindlela, a strategic initiative aimed at enhancing productivity and competitiveness.
Godongwana highlighted the first phase’s success in executing 35 reform actions across various network industries, which included resolving power cuts, improving logistics, and attracting essential skills through revised immigration regulations.
“These and many other reforms will lead to higher investment and higher growth and faster job creation. In the near term, growth is much weaker, but there are reasons to be optimistic about the medium term outcome,” he said during his pre-speech media briefing.
Despite his positive outlook on structural reforms, caution lingers due to potential global economic downturns that could disrupt South Africa’s recovery trajectory.
If additional capacity from energy investments materialises, Treasury projects a GDP capability 2.4 percentage points above the baseline forecast by 2032.
However, underperformance is still projected in the short term, particularly if global growth remains sluggish through 2025 and 2026, impacting commodity demand and trade volumes, before levelling off 0.5 percentage points below the baseline forecast by 2032.
Total unemployment in South Africa has taken a turn for the worse, with the jobless rate reaching a staggering 33.2% in the first half of the year, up from an average of 32.4% in 2023, pushing the government to implementing policies aimed at job creation and addressing informal and self-employment sectors.
In his speech, Godongwana said structural reforms were needed to increase job creation significantly and sustainably; to confront the country’s low employment intensity of growth; to address its comparatively low contribution of informal and self-employment; and to strengthen the effectiveness of government’s suite of employment initiatives.
“We will use our collective efforts to increase the pace and scale of tackling unemployment and building a stronger economy,” he said.
Looking ahead, despite the reduction in growth forecasts, optimism surfaces for a medium-term recovery.
GDP growth is anticipated to average 1.8% from 2025 to 2027, a slight improvement from 1.2% over the previous three years, contingent on overcoming persistent infrastructure challenges and maintaining macroeconomic stability.
The Treasury also pointed to signs of renewed confidence, as evidenced by a rise in financial markets, a stronger rand, and reduced borrowing costs.
However, the long-standing structural issues that have plagued the economy for decades require immediate attention and reform to become more productive and competitive.
As a result, the government’s growth strategy will be anchored by maintaining macroeconomic stability, implementing structural reforms, building State capability, and supporting growth-enhancing public infrastructure investment over the medium term.
“The depth of these challenges, including weak state capacity, underscores the need to speed up reforms to make the economy more productive and competitive, accelerate inclusive economic growth and foster much-needed job creation,” Treasury said.
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