South Africa's economy is expected to make positive strides in 2025 after struggling for over a decade, with efforts to tackle growth barriers and rising consumer spending driving progress, according to leading analysts.
Economists surveyed by Bloomberg forecast growth of 1.7% for 2025, an improvement over the 0.7% anticipated for 2024 and a significant increase from the average growth of less than 1% over the past decade.
Elna Moolman, head of South African macroeconomic research at Standard Bank Group, highlighted that the economy now has "a credible prospect of stabilisation" after years of decline.
Several factors are contributing to the projected growth, including political cooperation within the coalition government formed by the ANC following its loss of an outright majority in last year's elections.
Additional factors such as lower interest rates, increased fixed investment, and the improved performance of the country’s electricity, transport, and logistics sectors are expected to have a positive effect, according to Kenneth Creamer, an economist at Wits University in Johannesburg.
Economists anticipate that the central bank will reduce interest rates by 50 basis points to 7.25% in the first quarter, with inflation expected to remain below the 4.5% midpoint of the target range.
This would bring the total rate cuts since September to 100 basis points, potentially boosting economic growth by 30 basis points as consumer spending rises, said Reezwana Sumad, a senior research analyst at Nedbank CIB.
However, even with 1.7% growth, South Africa's challenges of high poverty and unemployment rates are unlikely to improve significantly. This growth rate is just above the population growth rate of 1.3% and roughly equal to the rate of labour market expansion.
A pivotal year lies ahead for South Africa's economic prospects, according to Moolman. "We’ll get a sense of whether we are too optimistic in thinking that we are working toward a higher growth rate or not."
For sustained growth, the coalition government must remain intact and continue implementing necessary reforms. "We need continued electricity reform, continued electricity supply certainty, and we need water infrastructure to be upgraded," said Sumad.
She added that issues like the disruptions at the ports and Transnet’s rail authority need resolution, alongside broader policy reforms, such as the changes to the visa system announced last year.
In October, South Africa’s Department of Home Affairs introduced significant changes to work-permit regulations aimed at attracting skilled professionals to address the country’s skills shortages and boost the tourism sector.
"If we implement all of the reforms and we get a proper private sector response, then we can start thinking about growth rates that are enough to properly reduce unemployment and reduce government debt," said Moolman.
However, South Africa’s path to accelerated growth faces several risks. Domestically, challenges include strained local government finances, which are hindering planning and investment, as well as low state capacity and procurement corruption, according to Creamer.
Internationally, risks come from sluggish growth in China, South Africa’s largest trading partner, as well as the Federal Reserve’s slow approach to further interest rate cuts. The policies of US President-elect Donald Trump, including potential inflationary measures such as tariff hikes, could also pose challenges.
"We must make no mistake about how big of an impact US elections have been and will be in terms of Trump’s first year," said Sumad. She cautioned that businesses in South Africa and around the world may hold back on investment to assess the US administration’s economic agenda.
Nevertheless, Sumad expressed cautious optimism for the year ahead.
Comments