In these weekly economic insights, we share our macroeconomic analysis from the previous week and how it affects our portfolio positioning and our current economic outlook.

South Africa

GDP - Gross Domestic Product

Today, South Africa released it’s GDP statistics for Q4 2024. The GDP increased by 0.6% in the fourth quarter following a contraction of 0.1% in the third quarter of the year. Overall in the year 2024 the economy grew 0.6%.

This rebound was driven mainly by the Agriculture, forestry and fishing sector where there was a 17.2% as a result of increased production of field crops and animal products. The finance, real estate & businesses services industry grew for an eighth consecutive quarter, with financial intermediation, real estate activities and other business services the largest positive contributors to growth.

However, seven industries faced challenges, with manufacturing and transport, storage & communication being the most significant negative contributors to growth. Manufacturing suffered from weaker production in metals & machinery and automotive divisions, while transport experienced its fourth consecutive quarter of decline. The mining sector also struggled, with decreased production in various minerals, although coal and platinum group metals showed some positive performance.

On the demand side, household consumption spending rose, with increased expenditure on clothing, food, recreation, and household goods, suggesting improved consumer confidence. Notably, households spent 2.3% more in real terms compared to Q4 2023, while the trade industry grew by 1.6% over the same period. To meet excess demand, both trade and mining sectors drew down inventories, resulting in a R16.4 billion reduction. However, investment in infrastructure and fixed assets weakened, primarily due to declines in residential and non-residential buildings, as well as machinery and equipment.

Composite Leading Business Cycle Indicator

Last week, the South African Reserve Bank revealed that South Africa’s composite leading business cycle indicator decreased by 1.8% in December 2024. This was due to a slowdown in the growth rate of new passenger vehicles sold and a decrease in the number of residential building plans approved.

Inflation: CPI - Consumer Price Index

South Africa's inflation rate rose for the third consecutive month to 3.2% in January 2025, marking the highest level in four months. This increase was slightly below market forecasts of 3.3%. Despite the rise, the inflation rate remains well below the South African Reserve Bank's (SARB) preferred midpoint target of 4.5%.

The primary drivers of the increase in inflation were:

• Food and Non-Alcoholic Beverages: Increased by 2.3% year-on-year.

• Housing and Utilities: Rose by 4.5% year-on-year.

• Restaurants and Hotels: Saw a significant increase of 4.9% year-on-year

The January data was the first to incorporate the updated CPI weights, which assign more importance to food and non-alcoholic beverages while reducing the weight of housing and utilities, and transport

Medium-term inflation forecasts suggest rates will rise closer to the SARB's target in the coming years, with predictions of around 3.9% to 4.6% for 2025 and 2026. Due to false land confiscation claims, Trump’s freeze on South African aid further clouds the inflation outlook.

Finance Minister Enoch Godongwana still has the budget speech postponed to March 12th due to the continued disagreements within the coalition government over the VAT increase from 15% to 17%

Nigeria

GDP - Gross Domestic Product

Nigeria's economic performance in Q4 2024 shows a positive trend with notable growth across various sectors. The 3.84% year-on-year GDP growth is impressive, marking the highest rate since Q4 2021 and an acceleration from the previous quarter's 3.46%. This growth trajectory indicates economic resilience and recovery.

The services sector continues to be the primary driver of Nigeria's economic growth, expanding by 5.37% and contributing a substantial 57.38% to the total GDP. This sector's strong performance, particularly in financial services, insurance, and telecommunications, underscores the increasing importance of these industries in Nigeria's economic landscape.

However, there are some concerning trends in other sectors:

• Industrial sector growth moderated to 2% from 3.86% in Q37.

• Agricultural output slowed to 1.76%, down from 2.10%7.

• The oil sector's real growth decreased sharply to 1.48% from 5.17% in Q37.

The slowdown in the agricultural sector is particularly worrying, given its importance for food security and employment. The government should focus on addressing challenges in this sector, including climate resilience and security issues8.

The oil sector's performance, while positive, shows volatility. The average daily crude oil production increased to 1.54 million barrels per day in Q4, up from 1.47 million bpd in Q3 2024, but remained below the 1.56 million bpd recorded in the same period last year7. This suggests that while there's improvement, the sector is still facing challenges in reaching its full potential.

Overall, Nigeria's economic growth for the whole of 2024 reached 3.40%, a significant improvement from 2.74% in the previous year7. This annual growth rate, while positive, still falls short of the 6% target set by President Bola Tinubu. To achieve more robust and sustainable growth, Nigeria needs to address structural issues, diversify its economy further, and implement policies that support key sectors like agriculture and manufacturing.

PMI - Purchasing Managers Index

The latest Stanbic IBTC Bank Nigeria PMI report for February 2025 indicates a significant improvement in Nigeria's private sector, with the headline PMI rising to 53.7 from 52.0 in January. This marks the third consecutive month of growth and the strongest performance since January 2024. Key highlights include sharp increases in output and new orders, with the fastest expansion since January 2024. Inflationary pressures showed signs of moderating, though input costs continued to rise. Employment increased marginally due to cost pressures. Purchasing activity and stocks of purchases grew at accelerated rates, and supplier delivery times improved significantly.

The growth in Nigeria's private sector was widespread across various sectors. Agriculture, manufacturing, and services sectors saw substantial growth, contributing to the overall expansion. However, the wholesale & retail sector experienced only fractional growth. This mixed performance underscores the resilience of key sectors like manufacturing and services, which are crucial for economic stability and grow

Despite the positive trends, business sentiment dipped slightly in February, though companies remain optimistic about future growth. This optimism is driven by plans for expansion, including the opening of new plants and increased export operations. While current conditions are favorable, ongoing challenges such as cost pressures and inflation continue to influence business decisions. Nonetheless, the overall outlook remains positive, with expectations for continued growth in output over the next 12 months.

Regal Capital Outlook

As discussed last week, Africa's economic outlook for 2025 shows moderate improvement, with GDP growth projected to strengthen from 3.4% in 2024 to 3.7% in 2025 and 4.0% in 2026. This growth is driven by recovery in major economies like Nigeria, Egypt, and South Africa, as well as ongoing regional integration efforts through the African Continental Free Trade Area. The services sector remains the primary engine of growth, while agriculture and industries also contribute significantly.

However, the continent faces persistent challenges, including high inflation, mounting debt, and climate-related vulnerabilities. Debt sustainability remains a major concern, with interest payments consuming over 25% of government revenues in several economies. Despite these challenges, Africa is poised to remain the second-fastest growing region after developing Asia. Opportunities lie in Africa's abundant reserves of critical minerals and the ongoing implementation of the AfCFTA. To sustain momentum, the continent must address structural weaknesses, enhance regional collaboration, and implement targeted investments and inclusive governance. While the outlook is cautiously optimistic, geopolitical tensions, conflicts in some regions, and global economic uncertainties continue to pose risks to Africa's economic growth trajectory.

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