Revival of Consumer Demand in South Africa Signals Economic Recovery
South African firms are experiencing renewed demand due to improved power supply and declining inflation. Major companies report double-digit profit growth, indicating strong consumer confidence. Though growth remains slow, household consumption shows signs of improvement, with predictions of continued economic expansion in 2025.
Recent reports indicate that South African firms are experiencing a resurgence in consumer demand, attributing this growth to the resolution of prolonged power shortages and a decrease in inflation. Leading companies, including Discovery Ltd., Shoprite Holdings Ltd., and Harmony Gold Mining Co., have seen double-digit profit increases, while Nedbank Group Ltd. has exceeded profit expectations.
For many years, firms in South Africa have had to invest heavily to compensate for the inefficiencies of the state-run Eskom utility, and the recent improvements in electricity supply are bolstering consumer confidence. Enhanced power availability is positively impacting sectors ranging from automobile sales to insurance, further stimulated by legislative changes allowing consumers to access portions of their retirement savings.
David Shapiro, Chief Global Equity Strategist at Sasfin Securities, noted that improved power supplies have alleviated the operational strain on manufacturing companies, which in turn has lowered operational costs and increased production hours. According to forecasts from the International Monetary Fund, South Africa’s economy is projected to grow by 1.5% this year, a notable rebound from less than 1% growth over the preceding decade.
Despite the recent slow growth of 0.6% in 2024, which was the lowest since the early pandemic period, improvements were evident in the fourth quarter with a 0.6% growth following a prior contraction. Household consumption expenditure, a vital component of the economy, grew by 1% in the same period, indicating a potential path for recovery.
Yvonne Mhango, an Africa economist at Bloomberg Economics, anticipates that consumption-led growth will contribute to a quicker economic rebound in 2025. However, concerns were raised regarding the potential negative impact of the escalating US-China trade tensions, particularly under the rhetoric of former President Donald Trump, which may complicate South Africa’s economic landscape.
Moreover, the FTSE/JSE Africa All Shares Index has shown a modest gain of 3.3% this year, though it experienced a 0.8% decline recently. This outlined volatility reflects the current uncertainties facing South Africa’s economic recovery.
In summary, South African firms are witnessing a revitalization of demand, primarily driven by improvements in electricity supply and a reduction in inflation. Key businesses report significant profit growth, while consumption expenditure reflects positive trends in economic performance. Despite ongoing risks from international trade conflicts, forecasts suggest an optimistic outlook for the country’s economy in the near future, supported by anticipated growth in consumer spending and investment.
Original Source: financialpost.com
