This year started on an optimistic note for South African economic growth.
Following two years of sub-1% growth, in line with the average over the past decade, an improvement between 1.5% and 2% was in view due to several tailwinds — such as lower interest rates and low inflation, no load-shedding for a considerable time, notable railway and port improvements, and a seemingly more conducive political and policy environment for business under the government of national unity (GNU).
However, optimism has faded significantly since February, and growth forecasts have been scaled back to barely 1%.
Globally, the US administration’s abrupt and extreme trade policy announcements — such as a more than 100% tariff on US-Chinese trade — have obliterated both sentiment and global growth forecasts. Further complicating the situation for South Africa, were idiosyncratic headwinds, not only from unique tensions with the US administration but also the domestic unprecedented failure to pass, not one but two budgets.
It is therefore hardly surprising that the reduction in South Africa’s 2025 growth forecast sits at the poorest part of the global spectrum. Out of the 22 key emerging and advanced economies that we typically track, the reduction in the consensus 2025 growth forecast is the sixth-worst for South Africa. Notably, it matches the downgrade for the US, which should bear the brunt of the tariff impact and related uncertainty.
Even more disconcerting is the persistence of this trend: the 2026 consensus growth forecast reduction is, among our selection of 22 key economies, also the sixth-worst for South Africa.
Some of the investors and businesses we regularly engage are concerned that the widely expected improvement in South Africa’s trend growth rate might not merely be delayed, but that persistent growth constraints may cap South Africa’s growth at the average of 0.7% over the past decade.
However, we still see improvements in the electricity and logistics sectors, other reforms driven by Operation Vulindlela (the joint policy implementation team of National Treasury and the Presidency); growing interventions to accelerate infrastructure spending; and the more conducive political climate under the GNU, as likely to underpin a material and sustainable uplift for South Africa’s economic growth.
We are, however, monitoring several indicators to guide our expectations for such a trend growth lift. This, in essence, requires stronger fixed investment from the private sector, to expand South Africa’s productive capacity, which has (outside of energy-generation equipment) hardly grown over the past five years. Preceding this period, there was a more rapid growth of around 2% on average per year in South Africa’s real capital stock levels (the number of machines, etc).
We view the 2% growth trend that we deem reachable in two years’ time as a key milestone in the journey to stabilising critical South African challenges
Two survey indicators from the Bureau for Economic Research (BER) business surveys in particular will therefore garner our specific attention. The first indicator captures companies’ views on fixed investment. From double-digit declines in 2023 and 1H24, this index rebounded to +8 in 2H24 (after the GNU was formed); despite relapsing to 1.5 in 1H25, this still significantly exceeds the post-2020 average and we still regard this as strong enough to be consistent with our expectation for an imminent recovery in private sector fixed investment, provided the second indicator that we focus on recovers.
The second indicator captures companies’ views on the extent to which company growth is inhibited by the political climate (broadly defined, including sentiment not only about politics but also the policy environment as well as state infrastructure and service delivery, etc.). This index (which ranges from 0 to 100, with 100 being the worst) resurged to an average of 79 in 1H25, thereby largely reversing the post-GNU improvement to an average of 62 in 2H24, from a pre-GNU level of 84.
This index recovering is likely a prerequisite for any meaningful improvement in private sector fixed investment. Therefore, the weakness in 2Q25 can only mean that private sector fixed investment and economic growth remained weak in 2Q25. We foresee some improvement in 2H25 because of somewhat reduced fiscal uncertainty when the third version of the Budget was passed. It is also less likely now that the US will take damaging policy action (including tariffs) against SA. And, finally, SA’s growth-supportive reforms remain on track..
We view the 2% growth trend that we deem reachable in two years’ time as a key milestone in the journey to stabilising critical South African challenges such as the unemployment rate and fiscal debt-GDP ratio, though even stronger growth is required to ultimately reduce these ratios.
Update: July 1 2025
This article’s been republished to add credit to the BER in the fourth paragraph from the bottom.
• Moolman is Standard Bank Group head of South Africa Macroeconomic Research
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