Following subdued economic performance in 2024, with the projected Gross Domestic Product (GDP) anticipated to approximate 1% for the year, there exists a sense of optimism regarding a more favourable performance of the South African economy in 2025. Economic growth is forecasted to increase within the range of 1.5% to 1.7% in 2025, driven by the expected reduction in the inflation rate, which is anticipated to prompt the South African Reserve Bank (SARB) to decrease interest rates, alongside enhancements in electricity production and the cessation of load shedding. The inflation rate declined to 2.8% in October 2024, and projections indicate that it will remain under 4% until approximately mid-2025. Consequently, the SARB foresees the continuation of the interest rate easing cycle, with the repo rate stabilizing around 7%, which is below the prevailing rate of 7.75%.
A decrease in inflation and interest rates is anticipated to alleviate the financial pressures faced by consumers, thereby stimulating expenditure within the economy. According to the SARB’s Quarterly Bulletin for the third quarter of 2024, household debt as a proportion of GDP escalated to 62.2%. The anticipated reduction in the interest rate is expected to provide essential relief to households by augmenting disposable income, which in turn will enhance consumption expenditure and promote economic growth.
Notwithstanding the optimism surrounding the expansion of the South African economy in 2025, it is imperative to recognize that both domestic and international geopolitical events represent significant threats to economic performance. On the domestic landscape, ESKOM’s application for a 36.15% tariff increase to the National Energy Regulator of South Africa (Nersa) for the 2025/2026 fiscal year constitutes a substantial risk to the nation’s inflationary outlook. The SARB predicts an increase in the inflation rate following the third quarter of 2025 should the tariff increment be sanctioned. The suboptimal condition of municipal infrastructure and persistent logistical challenges will continue to obstruct economic growth if they remain unaddressed. Municipal infrastructure is crucial for attracting investments, which in turn promotes economic growth and job creation. Logistical impediments diminish the competitiveness of South African exports, thereby adversely affecting economic growth.
On the international stage, escalating conflicts in the Middle East may intensify, posing a risk to the stability of oil supply from that region. Additionally, the ongoing escalation of the Russia-Ukraine conflict may also disrupt oil supply chains. Such developments are likely to instigate a rise in oil prices, which would, in turn, elevate inflation in South Africa, given its status as an oil-importing nation. An increase in inflation could compel the SARB to adopt a more cautious stance regarding interest rate policies, thereby prolonging elevated interest rates. This scenario would consequently restrain consumer spending and impede economic growth.
Trade policy uncertainty has markedly escalated within the global economic landscape, with expectations of heightened trade conflicts in 2025 between the United States and China, as well as other nations. The proliferation of global trade restrictions is anticipated to elevate import costs, increase production expenses for enterprises, and diminish living standards for consumers who will be compelled to incur higher expenditures. For example, the incoming President of the United States, Donald Trump, has proposed the imposition of a universal tariff ranging from 10% to 20% on imports entering the United States. This policy is poised to pose a considerable economic challenge for exporters of metals and ores in South Africa, consequently adversely affecting economic performance. There exist concerns regarding the economic performance of the United States under the administration of Donald Trump in 2025. This scenario introduces further vulnerabilities for the South African economy, given the significant role of the United States as a trading partner. Nonetheless, it is important to highlight the potential for increased US investments in South Africa. The PwC US’s Pulse Survey conducted in October 2024 revealed that 50% of US executives surveyed indicated intentions to augment foreign investments, which augurs positively for the South African economy considering the United States is the fourth-largest source of investments within the nation.
Notwithstanding the reality that several determinants of economic expansion in South Africa lie beyond the purview of the country’s governance, domestic factors necessitate the formulation and execution of policies aimed at stimulating economic growth. The enhancement of the South African economy’s performance will necessitate the alleviation of bottlenecks such as logistical impediments and municipal infrastructure deficiencies, which obstruct exports, deter investments, and ultimately stifle economic growth. Logistical impediments render exported goods less competitive in international markets, while deficiencies in municipal infrastructure serve to dissuade potential investments.
Dr Clement Moyo
Economist at Ntiyiso Industrialisation Consulting