PAUL HANRATTY | It could be a happier new year or two for the economy

A year marked by significant global economic disruption, highlighted at the G20 and B20 summits in Johannesburg recently, is ending.

Reflecting on the past 12 months, I am struck by South Africa’s position at this moment and its potential to chart a more growth-oriented path forward. The country enters the final years of the decade at a critical inflection point. The challenges are undeniable: subdued global demand, geopolitical uncertainty, and persistent infrastructure constraints. Yet, as an institution deeply engaged in South Africa’s economy, Sanlam continues to see grounds for measured optimism.

The company I lead demands a long-term perspective — one that looks beyond short-term volatility. Our outlook, therefore, is built on a balanced assessment of what can be achieved through sound policy choices, strong governance and a collective commitment to shared progress.

The South African economy has shown modest growth in 2025 to date. In Q2, GDP expanded 0.8% quarter on quarter, lifting first-half growth to about 0.7%.

Given weak momentum, many forecasters have trimmed their expectations. The National Treasury, in its 2025 medium-term budget policy statement, projects 2025 growth of 1.2%, rising marginally to 1.5% in 2026, under a scenario of moderate reform traction.

These forecasts underscore the fragility of the current cycle but also point to the upside potential if reforms gain momentum. There are sound reasons to be optimistic about the reform agenda.

South Africa’s inflation dynamics remain within manageable bounds. Core inflation has been relatively stable, while administrative and input price pressures, such as electricity, continue to be key drivers. Producer price inflation for final manufactured goods in September 2025 stood at 2.3% year on year, up from 1.5% in July, signalling modest upstream cost pressures.

Together, these monetary and fiscal anchors give credence to the view that the macro framework remains credible, which is a necessary condition for growth

The South African Reserve Bank continues to anchor price expectations through prudent policy in support of sustainable economic growth. At the same time, National Treasury projections show it is committed to fiscal consolidation to stabilise and ultimately reduce the government’s debt ratio.

Together, these monetary and fiscal anchors give credence to the view that the macro framework remains credible, which is a necessary condition for growth.

Investor sentiment has shown signs of revival. Despite a dip in 2Q25, net foreign direct investment inflows have been significantly positive in recent years, an indication that long-term capital is cautiously returning.

The country has also secured significant external support to accelerate infrastructure development. In June 2025, the government finalised a $1.5bn (R25bn) World Bank loan to upgrade transport and energy infrastructure aimed at loosening logistics bottlenecks and improving energy security.

These investments are critical. Without resolving constraints in ports, freight, electricity and roads, growth will remain stunted regardless of demand-side conditions.

Beyond the positive economic indicators, a notable development marking South Africa’s progress toward sustained growth is its very recent removal from the Financial Action Task Force greylist. This milestone follows nearly three years of intensive reform efforts by the South African government to strengthen its financial oversight and regulatory frameworks.

This signals restored international confidence in the country’s financial integrity and governance. It is expected to enhance South Africa’s global reputation, attract greater foreign investment and ease access to international financial markets by reducing compliance and transaction costs. This development should strengthen the rand, boost investor sentiment and lower risk premiums on South African assets. It also reflects positively on the government’s institutional reforms in combating financial crimes and improving regulatory oversight. Overall, exiting the greylist is a major step toward improving economic growth prospects, financial stability and credibility in the global marketplace.

Building on this and the recent economic data, there are several key features of the economy that justify continued, though cautious, optimism:

• Reform leverage: While the risk of prolonged low growth remains if reform momentum slows, there is growing evidence of strong commitment to structural change. The government has already implemented several important measures — notably reversing the proposed VAT increase to ease pressure on consumers. Efforts to liberalise energy procurement, restructure state-owned enterprises, and expand opportunities for private investment are gathering pace, signalling a more pragmatic and growth-oriented policy direction.
• Strong institutions: South Africa’s institutional framework continues to provide a competitive edge. The credibility of the central bank, the independence of the legal system, and a professional civil service act as stabilising forces, helping shield the economy from policy volatility and enhancing investor confidence.
• Room for productivity gains: The economy’s current performance indicates potential for upside surprises if improvements are made in logistics, energy and public infrastructure. Even modest gains in productivity within these sectors could have a significant impact on overall economic growth.
• Digital transformation and inclusion: On the demand side, increasing digital adoption is transforming consumption patterns and financial services. As more people gain access to formal financial tools, the resulting multiplier effects can drive broader economic participation and growth.
• Resilience built from real engagement: My confidence is grounded in our firsthand experience on the ground. Across product lines and channels, we are witnessing incremental growth, resilient margins, and adoption of new products, even within a constrained macroeconomic environment. This serves as a microcosm of the potential that could be realised on a broader, macroeconomic scale.

South Africa’s economic growth is unlikely to accelerate immediately, but the country has the potential to stabilise at a steady 3%-4% growth rate by the end of the decade — provided that structural reforms are sustained, investment rebounds, and economic inclusion deepens.

In an environment where the role of business, particularly large financial institutions, is under heightened scrutiny, it is essential that we go beyond observation or criticism and instead act as catalysts for progress, helping South Africans build lasting financial security. As consumer participation expands and productivity gradually strengthens, the collective restoration of political, social and economic confidence will gather momentum.

While current data remains mixed, the country’s trajectory is not fixed; with disciplined policy, institutional integrity, and active engagement from both business and society, South Africa can rise above prevailing pessimism.

I remain convinced that growth follows when citizens, entrepreneurs, and institutions choose confidence and work collaboratively toward a shared vision of renewal.

• Hanratty is CEO of Sanlam Group