In the space of a single week I was accused of being both too optimistic and too pessimistic when presenting the same number to different people: the Bureau for Economic Research’s (BER’s) forecast that real GDP growth will be 1.3% in 2026. At least both parties agreed that 1.3% growth would be too low.
After the better-than-expected GDP growth outcome of 0.8% in the second quarter, growth of just above 1% in 2025 now looks possible again. Adding another 1.3% in 2026 would beat our performance in much of the past decade. Still, we could and should be doing better.
Private sector fixed investment is the linchpin of sustained economic growth. In post-1994 SA the consumer has been a big driver (and even kick-starter) of growth.
Government spending has been an important support too (though the government has not always spent on the right things), but the consumer and state can only spend so much before the money runs out. While investment-led recoveries are rare in SA, fixed investment is the fuel that is needed to keep the engine running.
The latest GDP data shows that the real economy is now 2.8% bigger than in the fourth quarter of 2019, before the Covid-19 pandemic struck. Consumer spending is 5% higher, but fixed investment is 11% lower. Strip out machinery and equipment — much of it renewables — and private sector fixed investment is 22% lower.
Does that mean corporate SA is to blame for weak growth? That would be jumping to an unfair conclusion. In response to the third quarter business surveys we received more than 300 comments from businesses. In the non-compulsory question we prompt them to think about negative and positive developments. Unfortunately, the recent feedback is mostly negative and provides a sobering reality check.
Some retailers say they have to deal with unexpected surcharges on top of their rental agreements because, for instance, the mall now needs its own water tanker. Meanwhile, building contractors complain that they are struggling to pay their workers because they are not getting paid on time for work done (often by the government, with late revenue receipts partly to blame). It is shocking that dealing with crime and construction mafias has become so widespread that paying for “protection” has become a permanent business expense for some.
We hear about struggling start-ups that must wade through layers of red tape and corruption, and experienced business owners who worry they have no option but to close down. They worry because they know this will cause job losses and hardship. Imagine the shocks an SA business owner has survived in the past 20 to 30 years, only for 2025 to be the year that breaks the camel’s back.
— A low-demand environment is not conducive to investment growth. But it seems the government has lost the sense of urgency that was palpable this time last year.
There were a few positive remarks, but even these were not unequivocal, like the business owner who said: “We are OK with the US tariffs, but our client is not so we are still worried.” It is telling that most concerns are not about gaining a competitive edge but about staying in business. Remember, too, that we survey the survivors; those who closed up shop have already dropped from the sample.
Beyond sentiment, our activity indicators — production, sales, employment and selling prices — paint the same dismal picture. When I saw the BER’s latest composite selling price indicator my first thought was that the SA Reserve Bank would be pleased as there is no evidence of upward pressure on prices. Maybe getting inflation back to 3% will not be as challenging as many fear.
But it is concerning if you consider why selling price inflation is so low: there is just no demand. Despite steep electricity tariffs, above-inflation wage increases and other cost pressures, businesses are telling us that the rate of increase in selling price inflation is below normal. Historically, lower prices would help a little on the volume front, but we don’t see any sign of that either.
A low-demand environment is not conducive to investment growth. But it seems the government has lost the sense of urgency that was palpable this time last year. Lifting SA’s potential growth trajectory was never going to be easy, but we all knew (and still know) what needs to be done.
The problem with slow progress is that the to-do list continues to grow, so prioritising reforms is important. For macroeconomic policy certainty we need to reset the benchmarks — officially target both lower inflation and a primary budget surplus. Both will cause some short-term pain, but it will be far outweighed by the long-term gains.
The government also needs to announce credible successors to institutions such as the National Prosecuting Authority and SA Revenue Service in good time and ensure that Operation Vulindlela has the full-time resources needed to tackle its growing to-do list. The next front line of the battle should be at municipal level, otherwise we will never win the fight.
We all know that making faster progress on the reform front will start to move the needle on growth, but we need to wake up. SA cannot grow when it is in survival mode; when business confidence is low; and investment, the engine of growth and jobs, is stalling.
One survey comment has been haunting me for a while because it cuts so close to the bone: “I hope SA makes it.” I hope so too.
• IJssel de Schepper is chief economist of the BER.
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