While the GNU pushes to expedite service delivery reforms in a local government election year, South Africa can expect modest growth and a subdued inflation outlook as external risks continue to put pressure on the economy.
Tertia Jacobs, the Treasury economist at Investec, said the economy is expected to gain more broad-based momentum in 2026 as the GNU continues to remain intact, supporting policy continuity and confidence.
“The SA Reserve Bank’s (SARB) move toward a lower inflation target, endorsed by the minister of finance [Enoch Godongwana], and a benign inflation outlook create scope for further policy rate cuts over the medium term.
“Government borrowing costs are expected to remain contained, as the sovereign risk premium has declined due to increased confidence that fiscal policy will stay on a consolidation path, supported by a new fiscal anchor.”
She said sustained strength in precious metal prices could continue to support the rand, bolster government revenue collections, and lead to revitalisation in the mining sector.
“Reform momentum, particularly in the logistics and energy value chains, could be deepening. Public–private partnerships aimed at rehabilitating freight rail corridors and ports are gaining traction, while investment in electricity transmission infrastructure is hopefully being scaled up.”
Jacobs said Investec was monitoring external and domestic risks, including developments in the US–South Africa relationship, the implementation of the EU’s Carbon Border Adjustment Mechanism for SA’s iron ore and steel sectors, and the performance of US equity markets.
“These risks are compounded by an increasingly fluid and uncertain geopolitical environment, with the new year off to an eventful start due to developments in Venezuela, as the global economic and political order continues to evolve.”
She said the deepening water crisis, together with operational, governance, and financial challenges at local authorities and large metropolitan municipalities — most notably Johannesburg — pose material risks to economic activity and service delivery.
Miyelani Mkhabela, CEO and chief economist at Antswisa Capital Partners, said SA’s economic outlook for 2026–2028 is cautiously optimistic, with anticipated moderate GDP growth of around 1.6% in 2026 and 2.5% in 2027 and 2028.
“The new central bank inflation targeting was the monetary innovation for 2025, and we will have a stronger economy with lower interest rates... SA’s G20 presidency in 2025 can add value in manufacturing and technological advancements, investment, and tourism.”
He said monetary policy is at its strongest phase, and we had a new inflation target that will make South Africa attractive in the future, and the rand value improved by 13%.
“Political and economic fragmentation will continue as the United States starts to show the new orders of the decline, and China shows new orders of the rise. These economies will be systematically fighting for a decade until China becomes the world’s biggest economy.”
Mkhabela said SA faces economic and investment fragmentation from the US, and needs to urgently diversify, attract and strengthen new relationships to make the economy resilient.
“South Africa needs strong investment in ports and terminals, data centres, space economy, and manufacturing to trigger a fast and consistent shared growth for longer and higher.”
Elna Moolman, Standard Bank Group head of South Africa macroeconomic research, said 2025 has suffered exceptional global and domestic uncertainty, which is at least partly responsible for the downward revisions to growth forecasts.
“However, while 2025 growth is unlikely to reach the initial forecasts (made at the beginning of last year), growth is still likely to at least double from 2024, with a further improvement likely in 2026.”
However, while 2025 growth is unlikely to reach the initial forecasts (made at the beginning of last year), growth is still likely to at least double from 2024, with a further improvement likely in 2026.
Household consumption expenditure growth may soften slightly from the robust growth in 2025, with the tailwinds from low inflation and strong growth in the government’s wage bill likely fading, but it should remain relatively robust.
“Most consumers are, following protracted weakness in consumer credit growth, in reasonable financial shape, supported by low inflation and lower interest rates, and notwithstanding the adverse impact of fiscal drag (not adjusting income tax brackets for inflation in last year’s budget).”
In contrast, Moolman said, fixed investment growth — a key prerequisite for a sustainable improvement in economic growth — has been decidedly less buoyant.
“The prognosis for infrastructure spending continues to improve, supported by a range of government interventions to accelerate spending and encourage more private sector participation. However, private sector fixed investment has lagged, plagued by both uncertainty and entrenched constraints.”
Firms’ sentiment should be boosted by the ongoing traction, albeit incremental, with reforms to address binding growth constraints. Confidence should also flow from SA’s delisting from the Financial Action Task Force’s greylist and the credit rating upgrade by S&P.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.