Coffee Table Economics (CTE) with Anchor, by Casey Sprake, is distributed periodically. CTE is a compilation of Casey’s research, analysis, and perspectives on key South African (SA) and global economic data such as inflation, spending trends, and international market dynamics, including socio-political events and the multiple factors shaping the world economy.
Executive summary
In this week’s edition, we highlight the following:
- Inflation in focus: A fragile balance amid policy shifts and global uncertainty. South Africa’s (SA) January Consumer Price Index (CPI) rose to 3.2% YoY from 3.0% in December, aligning with expectations and reflecting a relatively muted inflation environment. However, uncertainties surrounding fuel prices, the rand, and fiscal policy—particularly the potential value-added tax (VAT) hike—could disrupt this stability in the coming months. While households may see short-term relief, weak demand and structural challenges continue to limit broader economic momentum.
- SA’s economy: A slow crawl forward with a few bright spots. SA’s economy managed modest growth of 0.6% QoQ in 4Q24, bouncing back from a small contraction in the previous quarter, but the overall pace remained sluggish. Agriculture, finance, and trade stood out, keeping GDP afloat, while manufacturing, energy, transport, and government services struggled. Despite a temporary reprieve from severe loadshedding, the economy failed to gain much traction, with logistical inefficiencies, weak business investment, and ongoing global uncertainties acting as major roadblocks. With economic growth consistently falling below the 3% threshold needed for meaningful job creation, structural reforms, investor confidence, and productivity improvements are crucial if SA hopes to break out of its low-growth cycle.
- SA’s potential greylist exit: A step closer to rebuilding investor confidence and economic growth. In February 2025, SA made significant progress in addressing 20 out of 22 action items related to its greylisting by the Financial Action Task Force (FATF), putting it on track for potential delisting by October 2025. Improvements in anti-money laundering, terrorist financing, and beneficial ownership reporting are vital for SA’s international reputation and strengthening the country’s economy and governance.
Inflation in focus: A fragile balance amid policy shifts and global uncertainty
The reweighted, rebased, and reconfigured CPI outcome for January 2025 was largely in line with expectations, recording a 3.2% YoY increase from 3.0% in December. The usual suspects—household contents, health costs, and the seasonal hotel price surge—were behind the rise. Interestingly, this happened even as food and non-alcoholic beverage (FNAB) inflation slowed, and fuel prices continued their downward trend. MoM headline inflation edged up by 0.3%, a step up from December’s 0.1%, reflecting price increases across multiple categories. Core inflation, which strips out the more volatile elements like food, fuel, and energy, eased to 3.5%—the lowest level since February 2022. While households are seeing some financial breathing room, with deflation in household contents and equipment losing steam, this extra spending power appears more seasonal than structural. Beneath the surface, the economy is still sluggish, with weak demand keeping inflationary pressures subdued in the medium term.
FNAB inflation slowed to 2.3% in January from 2.6% in December, primarily due to continued deflation in meat prices. But before anyone celebrates cheaper grocery bills, the monthly data tells a different story—prices crept up 0.4% in January, marking a second consecutive increase after December’s 0.2% rise. This was particularly noticeable in fish prices, a reversal of falling bread and cereal prices, and a rebound in meat costs, primarily driven by elevated maize prices linked to El Niño-related crop disruptions. Meanwhile, fuel price deflation lost some of its bite, slowing to -4.5% in January from -10.2% in December. This trend is expected to continue into February, with a further moderation to -2.3%. The primary driver of this slowdown is currency depreciation amid global uncertainties rather than changes in oil prices. With lingering risks related to geopolitical and economic instability, the rand remains vulnerable—meaning fuel prices might not be as helpful in keeping inflation in check as they have been in recent months.
On the technical side, the CPI basket itself has undergone adjustments, with 71 products removed, 53 added, and 29 reorganised through merging, splitting, or reclassification. The total number of products in the basket now stands at 391, down from 396. Despite the changes, the overall impact on headline inflation has been negligible. From a monetary policy perspective, inflation remains near the lower bound of the South African Reserve Bank’s (SARB) target range, maintaining the fundamental case for a potential rate cut. However, as always, global uncertainties continue to complicate this outlook. At the January Monetary Policy Committee (MPC) meeting, the vote was a tight 4-2 in favour of a cut. However, with the governor’s vote carrying double the weight, this effectively translated to a precarious 4-3 split. That means a single shift in stance could easily tip the scales toward keeping rates unchanged at the next MPC meeting in March.
The postponed Budget announcement, now scheduled for 12 March, will be a key moment for inflation projections, particularly regarding the proposed 2% increase in VAT. A VAT hike of this magnitude would significantly impact CPI inflation, potentially increasing it by nearly 1%. While the government may consider additional zero-ratings for basic foodstuffs to soften the blow, the reality is that a VAT increase raises the cost of living, squeezes disposable incomes, and, historically, has even dragged down GDP growth. The last VAT hike in 2018 (from 14% to 15%) led to an estimated 0.6-ppt rise in inflation and shaved about 0.2 ppts off GDP growth over the following year as consumer spending took a hit.
The bottom line
In short, while inflation remains muted, plenty of moving parts – namely fuel prices, the rand, and fiscal policy – could shake things up over the coming months. The modest rise in inflation is not alarming on its own, but the broader picture reveals a fragile balance. While households may be experiencing temporary relief, weak demand and structural challenges suggest that spending power is not exactly booming. In addition to the uncertainty around a possible VAT increase, a potential shift in monetary policy, and lingering global risks, it is clear that the road ahead is anything but straightforward. The SARB might still have room to cut rates if inflation remains contained, but external factors could easily upend that plan. Meanwhile, any major policy shifts—whether from a VAT hike or changes in global economic conditions—will directly impact consumers’ pockets and overall economic growth. For now, all eyes will be on the upcoming Budget speech and March’s MPC decision, both of which could set the tone for SA’s economic trajectory in 2025.
SA’s economy: A slow crawl forward with a few bright spots
SA’s economy managed to squeeze out 0.6% QoQ growth in 4Q24, a decent comeback after a slight 0.1% contraction in 3Q24. While it is not exactly a victory lap, at least the economy is moving in the right direction—albeit at a snail’s pace. The agriculture, finance, and trade sectors were the only real MVPs, keeping GDP afloat while the rest of the economy struggled to gain traction. For the full year, GDP also grew by 0.6%, just a notch below 2023’s 0.7%, underscoring how fragile SA’s economic momentum remains amid local and global headwinds.
Agriculture, forestry, and fishing stole the show, posting an impressive 17.2% growth for the quarter, thanks to strong performance in field crops and animal products. This sector single-handedly contributed 0.4 ppts to GDP growth, proving yet again that when the farmers win, the economy gets a much-needed boost. Even after a brutal 19.7% contraction in 3Q24 (an upgrade from an initially reported -28.8%), the sector bounced back, showing resilience despite unpredictable weather and high input costs. Meanwhile, finance, real estate, and business services chipped in with a solid 1.1% increase, contributing 0.3 ppts to GDP. With steady demand for financial services and real estate transactions, this sector remains a cornerstone of economic activity. The trade, catering, and accommodation industry also pitched in, growing 1.4% and adding 0.2 ppts to GDP, driven by a slight uptick in consumer spending—perhaps people were feeling just optimistic enough to eat out a little more.
Unfortunately, the good news stopped there, as several major industries took a hit. Thanks to ongoing land transport inefficiencies, transport, storage, and communication declined by 1.0%, while manufacturing shrank by 0.6%, weighed down by weak demand for metals and transport equipment. The electricity sector dropped by 1.4% as loadshedding and infrastructure woes continued to bite, and mining dipped by 0.2% due to lower manganese and iron ore production. Even government services contracted by 0.5%, as fiscal constraints led to job losses in public institutions. Clearly, the economy is still dealing with more potholes than progress.
SA’s economy in 4Q24 was a bit like a three-legged race—some sectors sprinted ahead while others tripped over themselves. Agriculture, finance, and trade put in a solid shift, helping keep GDP growth in positive territory, but manufacturing, energy, transport, and government services dragged things down. The economy recorded a modest annual GDP increase of 0.6%, falling short of the 0.7% YoY growth seen in 2023, signalling an economy struggling to gain momentum amid domestic constraints and global uncertainties. This underscores the urgent need for continued, accelerated structural reforms to stimulate growth and improve economic prospects.
An overriding issue in 2024 was that businesses hit the pause button ahead of the National and Provincial Elections (NPEs) in May, delaying major investment decisions. While post-election optimism did lift sentiment, that feel-good factor has not translated into real economic momentum. At the same time, state-owned freight transport and logistics company Transnet continued to test the patience of businesses, with ongoing logistical challenges slowing down operations across the board. On a slightly brighter note, exports saw a bit of a comeback in 4Q24, offering some hope that trade could provide a much-needed boost. But, as usual, Transnet’s inconsistencies mean that progress is more “two steps forward, one derailment back” than a straight road to recovery.
It remains concerning that the absence of severe loadshedding in 2024, compared to the record levels the country experienced in 2023, did not deliver a more pronounced boost to economic activity. While the mining sector managed a slight 0.3% annual expansion, the manufacturing industry continued to contract, highlighting broader industrial challenges. Businesses and consumers took time to adjust to a more stable power supply, but the recent reemergence of stage-six loadshedding underscores the fragile state of the electricity grid. This lingering uncertainty will likely continue to weigh on investor confidence and broader economic activity.
The bottom line
The domestic economy has shown minimal growth over the past five years, remaining marginally larger than before the COVID-19 pandemic. The initial 5% rebound in 2021 following the severe 6.2% YoY contraction in 2020 has given way to a steady deceleration in growth each subsequent year. Historically, significant job creation in the local economy has only occurred when GDP growth approaches 3% p.a. With current growth levels falling far short of this benchmark, the economy is simply not expanding sufficiently to drive sustainable employment gains or significantly improve long-term economic prospects for South Africans. Addressing structural constraints, restoring investor confidence, and implementing reforms to enhance productivity will be crucial in reversing this sluggish trajectory.
SA’s potential greylist exit: A step closer to rebuilding investor confidence and economic growth
In February 2025, SA made significant progress in its efforts to be removed from the FATF grey list, a move that has been years in the making. According to a statement from the National Treasury, the country has successfully addressed, or largely resolved, 20 of the 22 action items identified in its greylisting. This marks a major step forward. SA now looks set to be considered for delisting from the global “dirty money” list by October 2025, with FATF’s February plenary meeting in Paris further recognising the country’s progress. Four out of six outstanding action items were upgraded, leaving only two items to be resolved by June 2025, paving the way for a potential exit from the grey list in October.
The key areas of improvement include a more effective anti-money laundering (AML) and combatting the financing of terrorism (CFT) framework, with a focus on ensuring accurate and up-to-date beneficial ownership (BO) information, as well as demonstrating that all financial supervisors apply proportionate sanctions for breaches. South African law enforcement, regulators, and authorities in the financial sector have played a crucial role in these upgrades. The good news is that these upgrades are not just about ticking boxes for the FATF; they also play a key role in the country’s broader battle against crime and corruption. While there is still some work to do on investigating and prosecuting serious cases of money laundering and terrorist financing (areas that the government is committed to improving before the next FATF reporting cycle in 2025), the progress so far is a solid foundation for future success.
SA’s journey off the greylist is not just a matter of its reputation but also of economic and governance reforms. The improvements, if sustained, will signal the country’s commitment to curbing financial crimes and illicit financial flows, which have long hindered the economy’s growth. Greylisting has had a direct economic impact, especially on foreign direct investment (FDI). Investors and businesses have often been wary of engaging with countries on the FATF greylist, as it raises concerns about the robustness of financial regulations, the risk of sanctions, and the country’s vulnerability to money laundering activities. As a result, being on the greylist has significantly affected SA’s ability to attract investment, with businesses opting for more stable and transparent markets.
The economic implications of SA’s potential delisting are numerous. Once the country is officially removed from the greylist, it will likely see a more favourable investment climate. International investors are more inclined to engage with nations that have a robust regulatory framework and are seen as compliant with global standards. This could open the door to increased foreign investment, critical for boosting economic growth, creating jobs, and improving the country’s fiscal standing. With investment inflows expected to increase, key sectors such as infrastructure, manufacturing, and financial services may experience growth, further stimulating the broader economy. In addition, SA’s delisting could improve its credit rating through global rating agencies, which see the FATF greylisting as an indication of potential economic instability and regulatory deficiencies. A stronger credit rating will lower borrowing costs for the government, enabling it to access cheaper financing for infrastructure projects and social programmes. This, in turn, could improve the overall fiscal outlook and give the government greater flexibility to implement much-needed economic reforms.
The bottom line
The ongoing collaboration between regulators and law enforcement agencies to meet FATF’s expectations will likely strengthen SA’s broader institutional and legal frameworks. This includes enhanced transparency in business practices, reduced corruption, and improved public trust in the financial system. These improvements are critical for securing delisting and will contribute to a more resilient and sustainable economy in the long term. While there is still work to be done to address the remaining action items, particularly regarding the investigation and prosecution of money laundering and terrorist financing activities, the progress made so far indicates that SA is on the right track. If the country continues to demonstrate sustained improvements, the potential October 2025 delisting could mark a turning point. It would signal SA’s renewed commitment to tackling financial crime, restoring investor confidence, and improving its global economic standing, setting the stage for a more prosperous future.
