International background and outlook

Global growth improved moderately in the second half of 2024. A robust United States (US) economy provided the momentum, but the eurozone, the United Kingdom (UK) and Japan also fared slightly better. Performances varied across developing countries. The Chinese government announced more aggressive stimulus measures to revive its slowing economy and reverse the prolonged slump in the property market. Although inflation eased to, or moved within striking distance of, central bank targets in most countries, the direction of travel diverged toward year-end. Disinflation stalled in advanced countries but continued in most emerging economies. Even so, with inflation at much lower levels, major central banks eased monetary policy further. However, the lingering stickiness led to more cautious rhetoric, convincing market participants to scale back their expectations for interest rate cuts in 2025. Economic prospects for the year ahead remain relatively positive. Lower inflation will sustain real incomes, while easing interest rates will buoy confidence and gradually lift demand. Although the near-term outlook is reasonable, the world economy nonetheless faces downside risks from the likely change in US economic policies under a second Trump administration. US foreign policy is likely to become more unpredictable, potentially straining geopolitical relationships and accelerating global economic fracturing. Apart from these uncertainties, Trump’s trade policy presents the most significant downside risk to global growth. Therefore, the big questions of 2025 will be: When, how much, and on which countries will US impose tariffs?

Domestic background and outlook

Underlying economic conditions improved somewhat in 2024. Government made some headway with structural reforms, thereby limiting the drag from the most damaging supply-side constraints. Load-shedding ended in late-March and electricity supply stabilised. The country’s strained port, rail and road networks also functioned a little better. Although encouraging, these gains were not substantial enough to meaningfully boost economic activity within such a short timeframe. While inflation declined significantly, the squeeze from high interest rates lingered. Consequently, the economy remained weak for much of last year. However, the outlook for 2025 is more promising. GDP growth is forecast to improve from a weak 0.5% in 2024 to about 1.4% in 2025, driven mainly by more vigorous consumer spending, underpinned by rising real incomes, subdued inflation, and lower interest rates. Fixed investment is also forecast to recover as business confidence improves amid easing structural constraints, firmer domestic demand, and steady global growth. Other sources of demand will probably remain relatively subdued. Inflation is expected to remain contained, averaging 4% in 2025. With inflation well below the 4.5% target of the South African Reserve Bank (SARB), further monetary policy easing is likely. We expect interest rates to decline by a cumulative 50 bps, taking the prime lending rate down to 10.75%.