After having surged by 9.6% in 2022, real GDP shrunk by 3.3% in 2023, driven by rebalancing in pharmaceuticals and other export-oriented multinational-dominated sectors. As inflationary pressures and financial conditions ease, GDP will rise by 0.9% this year and 2.9% in 2025. Modified domestic demand, controlling for the major statistical distortions arising from the activities of multinationals, expanded by 0.6% in 2023, as weak domestic investment largely offset solid consumer spending, and is projected to increase by 2.4% in 2025, helped by a resilient labour market.
The government’s decision to save part of windfall corporate tax gains in two new savings funds earmarked to address long-term fiscal challenges is welcome. However, the large investments agreed in the National Development Plan to close housing and infrastructure gaps may run into capacity constraints – especially shortages of skilled labour – in the medium term. Hence, effective prioritisation and sequencing of investment projects will be key.