SA Lowers 2025 Growth Forecast to 1.2% Amid Global, Domestic Pressures

Despite the revision, Treasury maintains that the outlook shows moderate improvement and signals steady progress in structural reforms, especially in public infrastructure, energy, and logistics.

South Africa’s economic growth outlook has been revised downward to 1.2% for 2025, according to the Medium Term Budget Policy Statement (MTBPS) tabled by National Treasury on Wednesday. This marks a marginal drop from the 1.4% forecasted in the 2025 Budget, reflecting weaker-than-anticipated performance in the first half of the year, compounded by domestic and global headwinds.

Despite the revision, Treasury maintains that the outlook shows moderate improvement and signals steady progress in structural reforms, especially in public infrastructure, energy, and logistics.

---

Growth Dampened by Domestic Constraints and Global Uncertainty

Treasury’s updated economic assessment attributes the downward revision to several interlinked challenges:

• Logistical bottlenecks, particularly in freight rail and port operations

• Electricity supply disruptions, although recent stabilization efforts have reduced outages

• Low business and consumer confidence, which has weakened investment appetite

• A subdued global environment, driven by geopolitical tensions, trade frictions, and monetary tightening in major economies

Despite these challenges, the Treasury emphasized that macroeconomic stability is improving, aided by declining inflation, lower interest rates, and fiscal discipline.

“Government is meeting its fiscal targets, and the continued strengthening of macroeconomic stability will increase confidence and reduce borrowing costs across the economy,” the MTBPS stated. “This, in turn, will help revive investment and employment.”

---

Household Consumption Resilient, Investment Lagging

While household consumption has remained resilient, supported by:

• Lower inflation

• Stabilized interest rates

• Improved access to credit

Treasury noted that weaker investment, muted government spending, and soft exports have dampened overall expenditure growth. These trends have collectively weighed on the country's real Gross Domestic Product (GDP) performance.

---

Medium-Term Outlook: 1.8% Growth and Improved Investment Climate

Looking beyond 2025, National Treasury expects GDP to average 1.8% over the medium term, assuming reforms continue to gain traction and infrastructure investment picks up.

Key growth drivers identified include:

• Reduced cost of capital, supported by South Africa’s lower risk premium and improving credit conditions

• The anticipated impact of large-scale infrastructure rollouts, especially in energy and transport

• Progress in state capability enhancement, which Treasury views as foundational for unlocking private-sector investment

“Investment is expected to strengthen over the medium term as measures to lift infrastructure spending take effect and reform implementation gains traction,” Treasury said.

---

Key Risks: Reform Delays Could Derail Growth

While cautiously optimistic, National Treasury warned of significant downside risks to the outlook. Chief among these is the potential delay in implementing structural reforms, particularly in the energy sector and logistics infrastructure.

If these reforms continue to stall, the Treasury cautioned that it would “impede much-needed growth-enabling investment.”

Conversely, faster reform progress, along with lower inflation and interest rates, could spur higher-than-expected growth.

---

Four-Pillar Growth Strategy

To support long-term recovery and resilience, Treasury reaffirmed that South Africa’s growth strategy is centered on four key pillars:

1. Maintaining macroeconomic stability

2. Accelerating structural reforms

3. Building state capability

4. Investing in public infrastructure

Treasury emphasized that policy certainty, fiscal sustainability, and infrastructure-led growth will remain the core priorities in steering the economy toward higher potential output and inclusive development.

---

Global Headwinds Add to Domestic Challenges

The MTBPS also reflects on global trends that have influenced South Africa’s outlook. Global GDP growth is projected to slow to 3.2% in 2025, driven by:

• The delayed impact of tariff increases, particularly following U.S. policy announcements earlier this year

• Rising protectionism and supply chain disruptions, which are hampering global trade flows

• Moderating demand in advanced economies following deficit-financed stimulus withdrawals

“The prospect of higher tariffs buoyed trade in the first half of the year as companies brought forward imports and exports,” Treasury noted. “However, this is expected to wane during the second half of 2025.”

On the inflation front, global prices are expected to ease further, led by falling energy and food costs, though Treasury warned that renewed disruptions could trigger fresh inflationary spikes.

A Cautious but Hopeful Trajectory

South Africa’s revised growth outlook for 2025 reflects the realism of macroeconomic planning amid a turbulent global landscape and persistent domestic constraints. However, with improving inflation, lower borrowing costs, and a stronger reform agenda, there is cautious optimism that the country can rebuild investor confidence and pave the way for higher medium-term growth.

To realize these gains, Treasury has stressed the importance of execution, policy coordination, and institutional capability, noting that “progress is evident, but delays in key structural reforms have held back investment.”

The MTBPS signals both a warning and a roadmap—underscoring that South Africa’s recovery depends on decisive action and collaborative effort to break through persistent growth barriers.