Household consumption in South Africa is expected to pick up slightly in 2024 after likely growing at its weakest pace in three decades last year, outside of the global financial crisis and Covid-19 lockdown, according to a HSBC Global Research study.

Growth in consumer spending is expected to be below trend at 1.1% this year, compared with 0.7% estimated for 2023, analysts led by David Faulkner said in the report.

“The outlook for the consumer remains challenging, but having struggled so much last year we think there is room for stronger household finances as 2024 progresses,” the analysts wrote.

Household consumption has been constrained by sticky inflation, elevated interest rates, and a fragile labour market recovery, amid weak economic growth, they said.

Policymakers at the South African Reserve Bank have been reluctant to cut rates that they held at 8.25% at their meeting last week and said they won’t act until they see convincing evidence price pressures are heading sustainably to target.

The HSBC analysts don’t expect this scenario to change anytime soon. They forecast inflation to average 5.3% this year, compared with 5.9% in 2023 and 5.1% in 2025, and poorer households again facing higher price growth due to food.

“Against this backdrop of sticky price growth and elevated inflation expectations, we see little scope for significant policy easing this year, with the SARB likely to remain cautious until there is a sustainable trend of disinflation towards the preferred 4.5% midpoint of the target range,” they said. “This will limit the relief for debt service costs, which increased to an annualised R400-billion in the third quarter, equal to 9% of disposable income” and could rise by about R30-billion this year.

Due to these pressures, the analysts anticipate that the central bank will start cutting its benchmark policy rate only in September.

Still, they expect a recent extension of a monthly R350 stipend for poorer households, which was introduced during the coronavirus pandemic and will now run until March 2025, continuing “to support household spending at the bottom end of the income distribution, with the possibility that it is made more generous ahead of national elections.”

South Africa holds elections this year and Finance Minister Enoch Godongwana will be closely watched for signs of pre-voting generosity when he delivers the annual budget statement in Cape Town on February 21.

He has said the nation needs to live within its means, but faces pressure from other parts of the government to loosen the public purse at time when polls show the ruling African Nation Congress at risk of losing its majority for the first time since the end of minority-White rule in 1994.

“Election related uncertainties may also curb the scope for stronger sentiment as consumers weigh political risks,” the analysts cautioned.