Macroeconomic Trends in South Africa : April 2025 Edition

Over the last few years, economic growth in South Africa has remained subdued and inflation under control. However, during 2024, expectations began to shift towards cautious optimism. Electricity power cuts became progressively absent from the end of Q1, and investments by independent power producers and households in renewables accelerated in response to regulatory reforms. Coordinated action between public and private actors also started to address challenges in other network industries, particularly logistics and transport (e.g., freight rail and ports). Inflation continued to decline, and interest rates began to follow suit in Q3. On the political front, initial uncertainty prior to the national elections was replaced by positive sentiment as the country united with the formation of a government of national unity. Despite rising confidence, annual GDP growth in 2024 was once again disappointing, at 0.6 per cent, even lower than the 0.7 per cent registered in the preceding year.

Key demand components contributing positively to growth included consumption, especially private consumption driven by declining inflation, while gross fixed capital formation experienced a strong contraction. In sectoral terms, services expanded, while industry and the agricultural sector registered negative growth for the year. Economic growth in 2025 is projected at 1.8 per cent to 1.9 per cent, supported by rising household consumption and business investment, aided by easing inflation and more accessible credit. However, downside risks are intensifying. Persistent supply and domestic resource mobilization constraints remain a challenge, and the GNU is under growing strain due to internal policy and positioning disagreements – particularly between its two largest parties – including over a proposed VAT increase of 0.5% in the upcoming budget. This has introduced uncertainty around the GNU’s stability and raised the risk of political instability. Adding to these concerns, the recent imposition of import tariffs by the US administration poses a significant external threat, with potentially far-reaching implications for South Africa’s economic growth.