10 Feb 2025

Budget 2025 | What to expect

With a challenging economic landscape, fluctuating currency, global trade tensions, and ongoing energy struggles, what can South Africans, businesses and investors expect from Finance Minister Enoch Godongwana’s 2025 Budget Speech?

NOW Ep92: Budget 2025 | What to expect

Investec experts Chief Economist Annabel Bishop, Treasury Economist Tertia Jacobs and Chief Investment Strategist Chris Holdsworth share their predictions for Budget 2025.

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Podcast key moments:

00:00 – Introduction

01:16 – Overview of the current macroeconomic landscape

03:08 – What has changed since the Minister of Finance tabled the Medium Term Budget Policy Statement (MTBPS) in October 2024?

04:10 – What will investors be watching in Budget 2025?

04:45 – How do you expect the Minister to navigate the fiscal deficit?

06:35 – Can government lower its debt trajectory?

07:43 – How do we drive growth in South Africa?

08:52 – Expectations for revenue in the upcoming Budget? Any tax increases?

13:11 – From an investment perspective, what are the implications for various key sectors and the equity market?

14:18 – The outlook for government bond yields

15:47 – When will South Africa get to investment grade?

16:44 – How can the Budget address issues related to retrenchment and unemployment?

18:12 – Are there strategies to ensure the development of a sustainable infrastructure in South Africa?

19:55 – What's the one big thing that you're looking out for in Budget 2025?

With fluctuating currency, global trade tensions, and ongoing energy struggles, the 2025 Budget is more than just numbers; it serves as a blueprint for the nation’s short-term economic future. In a special edition of the No Ordinary Wednesday podcast, host Jeremy sat down with a panel of Investec experts to discuss the upcoming Budget 2025 amidst South Africa's challenging economic environment.

The Macroeconomic Landscape

South Africa has undergone a period of notably weak economic performance, with growth estimated at approximately 0.5% for the previous year. However, there have been positive developments, particularly regarding the electricity crisis, although intermittent load shedding continues to affect the economy.

Chief Economist, Annabel Bishop, emphasized the importance of growth-stimulatory measures upcoming budget, particularly focusing on infrastructure development while also ensuring social welfare support. The global economy's impact on South Africa is also a significant consideration, and as the year progresses, inflation is expected to remain moderate, with potential growth increasing to approximately 3% in the medium term.

Investor perspectives

Chris Holdsworth, Chief Investment Strategist, noted that expectations for South Africa's growth have been low, which presents an opportunity for the country to exceed these expectations. With consensus forecasts predicting growth between 1.5% and 1.7%, even a modest improvement could yield results that surpass the current pessimistic outlook. While, Treasury Economist, Tertia Jacobs, pointed out that the global political environment, particularly with the influence of the US administration, poses risks to growth and inflation. The emphasis, therefore, must remain on domestic measures that can positively impact South Africa's economic trajectory.

Tackling the deficit and debt

A key concern for South Africa’s finances is the budget deficit and the rising debt-to-GDP ratio, which is expected to peak at around 75%. Bishop explained that the government faces challenges due to insufficient revenue and profitability within the economy. The trend of fiscal slippage over the years has led to higher borrowing costs and a weaker rand, complicating the government’s ability to manage its finances effectively. Jacobs added that while the base case scenario anticipates a stabilization of the debt-to-GDP ratio, achieving an investment-grade rating remains a distant goal unless economic growth can be significantly improved.

Tax policy and economic growth

On tax policy, Bishop emphasised that the focus should not be solely on increasing taxes for revenue but rather on fostering economic growth, which would naturally enhance revenue from various tax streams. The noted that the current economic climate limits the government's ability to introduce new tax measures without further burdening households. According to Holdsworth, from an investment perspective, the key areas to watch are the debt-to-GDP trajectory and potential changes in tax policy, which could significantly influence both the fixed income and equity markets.

Looking ahead: infrastructure and job creation

The conversation also addressed the critical need for sustainable infrastructure development in South Africa with Bishop expressing cautious optimism about progress in infrastructure projects, particularly in the freight and logistics sectors, which have historically been problematic. However, she acknowledged that the complexity of these issues means that immediate results may not be forthcoming. Jacobs underlined the importance of creating an enabling environment for the private sector to drive job creation, noting that the budget's role in facilitating growth is paramount. The panel reiterated that achieving sustained economic growth is essential for addressing unemployment and fostering a robust job market.

Annabel Bishop, Investec Chief Economist

While we probably are going to have a weakish year from a GDP perspective, I think it'll be the year that things start to turn, and we start to see strong growth from next year, picking up over the medium term towards 3%.

Chris Holdsworth, Chief Investment Strategist, Investec Wealth & Investment International

Market expectations are very low, so we don't have to do a lot. What Treasury needs to do is deliver roughly in line with the MTBPS. In that environment, we'd expect to see potential for an upgrade even without improving numbers, because the expectation is for deterioration.

Tertia Jacobs, Treasury Economist, Investec Corporate & Institutional Banking

I think the best scenario is for the debt to GDP ratio to stabilise at about 75 to 77% of GDP over the medium term. What we're hoping for is a holding year for the Budget, while we're waiting for economic growth to kick in.

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