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Will 2025 Be South Africa’s Economic Turning Point?

A renewed political coalition and improving business confidence signal hope for South Africa's economy in 2025. However, challenges such as fiscal pressures, infrastructure deficits, and high unemployment underscore the need for sustained reforms and prudent governance to achieve meaningful growth.

Author

Tlotlo Tumiso Suping
January 04, 2025 • Estimated Reading Time: 5 minutes

Overview

As we enter 2025, South Africa's economic landscape reflects cautious optimism and persistent challenges. The South African Reserve Bank (SARB) forecasts GDP growth of 1.6% for 2025, with projections of 1.8% and 2.5% for 2026 and 2027, respectively, averaging 2% over the next three years. Inflation is expected to stabilize around the 4.5% midpoint during this period.

The general elections of May 2024 marked a significant shift in South Africa's political landscape. For the first time since the end of apartheid, the African National Congress (ANC) failed to secure an outright majority, obtaining only 40.2% of the vote. This led to the formation of a Government of National Unity (GNU) in June 2024, comprising the ANC, the Democratic Alliance (DA), and several smaller parties. This coalition has increased business confidence and investor sentiment, evidenced by a stronger currency and improved financing conditions.

In this article, we look to briefly cover the various factors that may affect the economic growth of South Africa in 2025. According to PWC, South Africa is a trade-dependent economy with the value of goods and services traded equal to about 66% of GDP in 2023 versus a global average of 63%

Economic Performance in 2024 & Its’ Current State

The latter half of 2024 saw notable improvements in South Africa's economic indicators. The successful reconnection of the second unit of the Koeberg nuclear power plant to the national grid enhanced electricity supply, contributing to increased industrial productivity. Confidence in South Africa's economy improved significantly on the supply side following the 2024 elections, as evidenced by business surveys.

The Absa Purchasing Managers’ Index (PMI) entered expansionary territory, recording 53.3 in September and 52.6 in October. Similarly, the Rand Merchant Bank/Bureau for Economic Research Business Confidence Index rose to its highest level in nearly two years, climbing to 38 points in Q3 and reaching 45 in Q4 2024. However, while this cautious optimism is promising, it has yet to translate into substantial economic gains, which are expected to materialize gradually over time. Additionally, the South African rand began 2025 on a positive note, trading stronger against the U.S. dollar, reflecting increased investor confidence.

Despite these positive developments, South Africa continues to grapple with significant challenges. The National Treasury's budget review in October 2024 projected wider fiscal deficits and higher debt levels over the next three years, with a consolidated deficit of 5.0% of GDP for the fiscal year ending March 2025. Furthermore, infrastructure issues persist, exemplified by Johannesburg's severe water crisis, which has disrupted essential services and economic activities. Above all of these is the highly publicised load-shedding measures that have persisted for years until the lead-up to the elections where load-shedding programs stopped and by October 2024, they enjoyed 200 consecutive days without power outages.

Economic Outlook for 2025 and Beyond

Looking ahead, several factors are poised to influence South Africa's economic trajectory:

Energy Stability:

The revival of Eskom, improved performance of the Koeberg nuclear plant, and ongoing investments in renewable energy are expected to provide a more reliable power supply, essential for economic growth.

Fiscal Policy:

The coalition government's commitment to economic reforms has garnered a positive outlook from credit rating agencies, with S&P revising South Africa's outlook to "positive" in November 2024.

Structural Reforms:

The government's focus on infrastructure development and reducing barriers for skilled foreign workers aims to stimulate economic activity and attract foreign investment.

However, challenges such as high unemployment, income inequality, and infrastructure deficits remain. The success of the GNU in implementing effective policies will be crucial in addressing these issues and achieving sustained economic growth.

South Africa's economic outlook for 2025 presents a complex interplay of opportunities and challenges. While recent political developments and policy initiatives offer a foundation for optimism, the effective implementation of reforms and prudent fiscal management will be essential in steering the country toward a more prosperous future.

Below we’ll list some sources that we used for this article that go dive deeper into this topic.

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