This year has seen exceptional global and domestic uncertainty. There were hefty, complex and unforgivably abrupt adjustments to import tariffs levied by the US on numerous countries, including South Africa. And, at home, the budget impasse fuelled concern about the survival of the government of national unity and the Operation Vulindlela reforms that are easing binding growth constraints such as load-shedding and logistics infrastructure challenges.
In response to the turmoil, the rebound in business confidence measured by the Bureau for Economic Research’s index after the formation of the GNU has dissipated. Uncertainty lies at the core of this year’s disappointing economic growth. IMF research posits that uncertainty can be even more damaging to economic growth than moderate tariff hikes.
In addition to the surge in uncertainty, floods weighed on economic activity in wide-ranging sectors, from agriculture and construction to mining and manufacturing. What optimism there was a year ago about economic growth this year evaporated. The consensus forecast for 2025 economic growth collapsed from nearly 2% at the end of 2024 to just 1% by mid-year.
However, growth forecasts have now turned the corner, with the 2025 consensus expectation rising to 1.2% by November. The upcoming GDP data for 3Q25 should show a further expansion following exceedingly weak growth in the first quarter of the year and better growth in the second quarter. This expansion should be relatively broad-based across industries.
Particularly buoyant this year has been the consumer segment, with real (inflation-adjusted) spending expected to grow by around 2.5%. Our analysis implies that most consumers are, after protracted weakness in consumer credit growth, now in reasonable financial shape, supported by low inflation and lower interest rates and notwithstanding the adverse impact of fiscal drag through not adjusting income tax brackets for inflation in this year’s budget. There is also some impetus from sturdy growth in the government’s wage bill this year, underpinned by above-inflation wage increases and additional employment in frontline services such as nurses, doctors and teachers. A positive wealth effect from the robust equity market should further support consumers.
In view of fundamental macroeconomic improvements, we maintain that economic growth will improve in the medium term
However, fixed investment growth — a key prerequisite for sustainable improvement in economic growth — has been decidedly less buoyant and may even have contracted again this year. Nevertheless, the prognosis for infrastructure spending continues to improve, supported by a range of government interventions to accelerate spending and encourage more private sector participation.
Private sector fixed investment has lagged, plagued by uncertainty and entrenched constraints.
Encouragingly, though, green shoots have emerged, such as double-digit growth in corporate credit in the past three months that appears to be infrastructure-related, the recovery underway in machinery imports and further growth in the number of electricity generation projects registered with Nersa. In addition, the recent resurgence in South Africa’s terms of trade — the prices of exports relative to imports — should provide a notable boost to trade income, tax revenues and ultimately economic growth.
Sentiment, and in turn expansion, should be boosted by visible progress in addressing the electricity shortfall and underperforming logistics infrastructure, as well as increasing focus on improving water and municipal infrastructure. Confidence should also be gained from South Africa’s relatively quick delisting from the Financial Action Task Force’s “greylist”, which demonstrates the ability of the public and private sectors to cooperate to address challenges.
Equally encouraging was the recent sovereign credit rating upgrade by S&P as a nod to the Treasury’s progress in restoring fiscal sustainability. We foresee further positive rating actions in due course. Growth should also gain, over time, from the recent formal lowering of the Reserve Bank’s inflation target, which should result in structurally lower inflation and interest rates.
In view of these fundamental macroeconomic improvements, we maintain that economic growth will improve in the medium term, notwithstanding the disappointing downward adjustments to 2025 growth forecasts. We would expect this week’s 3Q25 GDP data to display encouraging elements, a prelude to notably better growth in 2026.
• Moolman is Standard Bank Group Head of South Africa Macroeconomic Research
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