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Picture: 123RF/PITINAN
Picture: 123RF/PITINAN

Second-quarter economic growth figures are due out from Stats SA early next month and while they are looking quite a bit better than the first-quarter’s slight contraction, this year’s economic growth is still expected to be muted.

Economists are revising their forecasts up for next year though, and if all goes well, better growth from 2025 onwards could give substance to the air of economic optimism that has prevailed since the government of national unity (GNU) came together last month.

South Africans hardly know themselves after almost 150 days with no load-shedding and the economic impact is starting to be felt, along with the boost the GNU has provided to business and consumer confidence. Absa’s economists now forecast the economy to grow by 1.1% this year, after last year’s pathetic 0.3%; Citi’s economists forecast 1.2%. But next year looks a lot more respectable, with the economists now expecting SA’s growth rate to lift to 2%.

A big factor is the launch of the “two-pot” retirement system on September 1, which will release tens of billions of rand into consumers’ pockets as many take advantage of the opportunity to cash in part of their pension or provident fund savings, without their having to resign their jobs.

Estimates vary on just how many billions will flood into the economy late this year and into next year. Absa’s after-tax estimates are R44bn this year and R34bn next year. That will translate into higher consumer spending, boosting the economy and — Citi points out — boosting equities, particularly consumer stocks.

The two-pot effect is, of course, a temporary sugar spike that will wash out of the economy after 2025 since most households that want to cash in are likely to do so in the first year or so. However, there are some more fundamental factors that should help to keep the growth boost going next year and beyond. One is the interest rate cycle.

Inflation is coming down, and we can safely expect a first interest rate cut in September followed by further cuts this year and next. Economists caution it will be a “shallow” cutting cycle, with the Reserve Bank unlikely to cut by more than 100 basis points in total. But rates are expected to come down quickly once the cutting starts. That should affect consumer spending and investment sooner rather than later. Banks such as Standard already say consumers are in a better place.

Add to that the impact of economic reforms that were already under way but thanks to the GNU are now more firmly “tethered”, as Absa’s economists put it. We have already seen the impact on load-shedding of reforms to open the electricity market to new private renewable energy generators as well as of joint efforts to fix Eskom. Those reforms need to continue, particularly efforts to fast-track private investment into the new grid capacity SA urgently needs.

We have seen only slow progress in fixing Transnet, whose rail and port performance may have stabilised but has yet to improve, with efforts to open the market to competition moving at glacial pace. Much faster progress is needed there, as well as in network industries such as water and digital communications.

But scenarios by the Bureau for Economic Research have shown that if SA can stay on course with reforms, we could see the economy sustaining growth of at least 2%, and rising to as much as 3.5% by 2029 if the right set of reforms is implemented. No doubt it will be a bumpy road. But we are at least on that road.

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