SA’s economic growth projection for 2025 remains at 1.9% following revisions to the February budget.
This reflects a rebound from 0.8% in 2024, supported by improving investor confidence, a stabilising electricity supply and easing borrowing costs.
However, real GDP growth for 2024 came in lower than the 1.1% estimate in the 2024 medium-term budget policy statement (MTBPS).
Finance minister Enoch Godongwana had initially been scheduled to table the 2025 budget in February but cabinet rejected it, leading to a postponement until Wednesday.
Over the medium term, the National Treasury expects average annual growth of 1.8% between 2025 and 2027 driven by higher investment and household consumption, aided by stable inflation, moderate employment gains and improving household balance sheets.
This projection is slightly higher than the 1.7% forecast in the October 2024 MTBPS and also exceeds S&P Global’s estimate of 1.4% for the same period despite the ratings agency revising SA’s outlook to “positive” in October.
In its Budget Review, the Treasury noted lower interest rates, larger-than-expected withdrawals from the two-pot retirement system, and progress on economic reforms could boost consumer confidence and demand.
Domestic growth is expected to be driven by household consumption, which is set to increase by 1.9% in 2025, alongside a rebound in fixed investment, projected to grow 5% after contracting in 2024.
The recovery is underpinned by structural reforms, improved investor sentiment and expanded public-private infrastructure projects. However, the employment rate remains low at 40%, well below global norms.
Inflation, which averaged 4.4% in 2024, is projected to decline slightly to 4.3% in 2025, down from the 4.5% forecast in February’s budget. It is expected to edge up to 4.6% in 2026 as the VAT hike pushes some price pressures higher.
The impact of VAT increases will be most visible in core inflation, which is projected to rise from 4.3% in 2024 to 4.6% in 2026, slightly above the midpoint of the Reserve Bank’s 3%-6% target range. This is a revision down from February’s estimate of 4.7% for 2026.
Gross fixed-capital formation is expected to rebound to 5%, averaging 4.6% over the medium term after contracting by
3.6% in 2024. This recovery is largely driven by public infrastructure investment and increased private sector participation.
Global demand is also forecast to recover with growth rebounding from 2.9% in 2024 to 3.8% in 2025.
Despite lower commodity prices compared to 2023, the Treasury revised its overall export price assumptions upward due to heightened geopolitical risks, strong US demand, steady Chinese imports and lower output from key producers.
However, the oil price assumption remains unchanged from the 2024 MTBPS.
Exports should benefit from easing logistical constraints, stable electricity supply and improved global commodity prices, while import volumes will rise due to lower oil prices, higher domestic demand and increased energy-related fixed investment
However, risks remain to the downside, including geopolitical tensions, trade policy uncertainty and slower-than-expected improvements in logistics.
The Treasury has modelled two alternative economic scenarios:
- Upside scenario: Faster infrastructure investment and logistical improvements could increase GDP growth to 2.7% in 2025, reaching 2.6% by 2032 (up from 2.5% projected in February), adding R1.1-trillion to the economy.
- Downside scenario: Global trade disruptions and inflation could slow growth to 1.5% in 2025 (revised up from 1.4% in February) and 1.6% in 2026, resulting in a R226bn GDP loss over the forecast period (up from R190bn in February).
Over the next year the government expects to reach two major milestones in rebuilding public finances:
- Public debt is projected to peak in 2025/26, stabilising at 76.2% of GDP.
- Debt-service costs will peak this year, reaching 21.7% of revenue before gradually declining.
The consolidated budget deficit is projected at 5% of GDP for 2024/25, widening from the 4.5% estimate in the 2024 budget. The deficit is expected to shrink to 3.6% by 2027/28, up from the 3.4% estimate in February.
Debt-service costs remain a major strain, forecast at R389.6bn in 2024/25, climbing to R478.6bn by 2027/28 — more than what the country spends on health or education.
To meet growing spending pressures the 2025 budget includes a significant revenue-raising strategy.
Since the 2024 MTBPS, gross tax revenue projections have been revised up by R5.6bn in 2024/25 and R137.8bn over the medium term.
The Treasury plans to raise an additional R28bn in 2025/26 and R14.5bn in 2026/27 by gradually increasing VAT — the first hike since 2018.
This differs from the February budget, which aimed to raise R58bn in 2025/26 and bring gross tax revenue to R2.03-trillion.
To compensate for the shortfall, the Treasury will increase VAT by 0.5 percentage points each year until it reaches 16% in 2026/27.
To ease the burden on low-income households, the Treasury has expanded the VAT-zero-rated food basket, approved above-inflation social grant increases and kept the fuel levy unchanged for another year, saving consumers R4bn.
On the expenditure side the draft budget projected spending to rise to R2.6-trillion in 2025/26.
Consolidated government spending is set to increase at an annual average of 5.6% from R2.4-trillion in 2024/25 to
R2.82-trillion in 2027/28.
The biggest spending drivers include R46.7bn for infrastructure investment, military deployments and increased social protection spending.
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