FirstRand Ltd, South Africa’s largest lender by market value, has revised its outlook on the nation’s economic trajectory, anticipating a more robust growth performance and a strengthening of the rand. The bank, through its investment arm RMB (Rand Merchant Bank), now sees a greater likelihood of South Africa’s GDP growth accelerating to 2% in 2025, alongside a marked recovery of the local currency to below 16 rand per US dollar.
In a report published on Monday, RMB raised the probability of its bullish scenario to 25%, from a previous 20%, reflecting increased confidence in structural reforms and improvements in key sectors. In contrast, the likelihood of a bear-case outcome has diminished, dropping to 25% from 30%. The lender’s base-case scenario, with a 50% probability, projects the economy to grow by 1% in 2024 and 1.8% in 2025, supported by a more stable electricity supply and ongoing government reforms aimed at infrastructure and logistics. This projection slightly exceeds the South African Reserve Bank’s forecasts of 1.1% and 1.6% for 2024 and 2025, respectively.
According to RMB’s report, the base case foresees the rand strengthening to 17.25 per dollar by the first quarter of 2025. This is despite the anticipation of four consecutive 25-basis-point interest rate cuts by the South African Reserve Bank (SARB). The rand has appreciated by 5.1% this year, trading at approximately 17.47 per dollar on Monday.
“We expect load-shedding to improve compared to 2023,” the report notes, using the term for South Africa’s scheduled power outages. “We are optimistic about energy reforms, while work continues on railways, roads, ports, and water infrastructure.”
In the bank’s optimistic, or bull-case scenario, the economy is expected to expand by 1.5% in 2024 and reach 2% growth in 2025, driven by a sharp recovery in the rand, which could strengthen to 16 per dollar over the course of 2025. This forecast assumes that structural reforms in sectors such as energy and logistics start to yield meaningful results, boosting economic output.
Conversely, the diminished bear-case scenario paints a more pessimistic picture. In this case, electricity shortages would deepen, and logistical bottlenecks would worsen, stifling growth. Under this scenario, South Africa’s economy would expand by only 0.6% this year and 0.8% next year, with the rand weakening to above 19 per dollar.
RMB’s report comes amid a complex economic backdrop for South Africa. The nation has been grappling with prolonged periods of load-shedding, stemming from decades of underinvestment in its power utility, Eskom. However, recent reforms in the energy sector and strategic interventions in critical infrastructure projects, including ports and railways, have given some hope to investors and businesses alike. Whether these reforms can fully turn the tide remains to be seen.
