Monthly macro and economic insights report

March 2025

Our monthly To the Point column by economist Dr Roelof Botha offers in-depth analysis and commentary on the latest economic trends, market developments, and financial news. Designed to keep you informed and ahead of the curve, each edition delves into key economic indicators, explores their impact on global and local markets, and provides insights to help you navigate the ever-changing economic landscape.

Sound recovery of retail trade sales

Following a downturn caused by record-high interest rates, South African retailers made a comeback during 2024, mainly due to two marginal cuts in the prime overdraft rate, which released some pent-up demand.

Since the beginning of 2020, retailers have been hammered by three unfortunate events, namely the Covid-lockdowns, the riots in KwaZulu/Natal in July 2021 and the decision by the monetary policy authorities to raise interest rates to their highest level in 14 years, despite the absence of inflationary pressures caused by excess demand in the economy.

A fortuitous combination of marginally lower interest rates, an increase in average remuneration levels and low inflation managed to lift household consumption expenditure by a considerable margin. In December, the nominal month-on-month increase in retail trade sales amounted to almost 18%, with the retail group for textiles & clothing recording a whopping 51% increase from November.

Specialised food & beverage outlets also had a bumper year-end, with month-on-month sales increasing by almost 40%. Pharmaceutical sales posted a 14% increase in December, which is traditionally an excellent month for retailers, due to year-end bonuses and Christmas shopping.

Modest improvement in GDP growth rate

South Africa’s GDP for 2024 grew by 0.6% to realise production of goods and services worth a total of R7.3 trillion. During the fourth quarter of last year, year-on-year economic growth came in at 0.9% – an improvement from the paltry year-on-year growth rates of 0.4% recorded during the previous two quarters.

Unfortunately, the average real GDP growth rate over the past two years remains below 1%, mainly due to the poor state of the country’s logistics infrastructure and the highest commercial lending rates in 14 years, which has served to stifle demand via the high cost of capital and credit. South Africa’s real prime overdraft rate currently stands at 7.8% – one of the highest in the world.

A positive trend emanating from the fourth quarter GDP data is the further recovery of the ratio between the gross operating surplus and total value added, which has progressed from 45.7% in 2019 (prior to Covid) to 49.8%. The sectors for utilities; agriculture; and transport & communication occupy the top three rankings for this key indicator of the productivity of economic capital.

Hopefully, a further lowering of interest rates, combined with progress in repairing and expanding the country’s infrastructure, will lead to higher economic growth in 2025.

Significant job growth 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. Although Gauteng, the Western Cape and KwaZulu/Natal continue to occupy the top three positions in terms of total employment, the Eastern Cape took the honours last year with employment growth of more than 100,000.

Another noticeable trend during 2024 is the move toward parity between the Western Cape and KwaZulu/Natal, with the former consistently narrowing the gap between them. The latter had a total employment level of just below 2.9 million, whilst the Western Cape stood at just above 2.8 million.

A predictable finding in the latest quarterly employment statistics published by Statistics SA is the relatively low unemployment rate for graduates and people with other tertiary education, namely 8.7% and 19.3%, respectively (at the end of 2024). In both cases, these rates declined marginally during last year. Hopefully, progress with the repair and expansion of the country’s infrastructure will stimulate job growth further in 2025.

Remarkable resilience of the rand

Over the past year, only one of the 16 key currencies monitored by Currencies Direct has proven more resilient against a resurgent US dollar than the South African rand. Between 29 February 2024 and 28 February 2025, the rand has 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 BRICS 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. President Donald Trump has promised to follow a growth-enhancing macroeconomic policy approach, which is likely to include tax reductions and has already led to increased tariffs on imports, especially on neighbouring countries and China.

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 a rate of 4.2% on 28 February, remains attractive to fund managers around the globe.

Until interest rates in the US decline further, the greenback is likely to remain in demand and its recent decline may have been a temporary setback.