Policy uncertainty index falls further into negative territory

Despite all the small steps the country seems to take to economic growth, policy uncertainty continues to fall into negative territory due to a combination of negative global and internal factors outweighing the positive ones in the Policy Uncertainty Index.

According to the NWU Business School’s Policy Uncertainty Index for the third quarter of 2025, policy uncertainty increased to a record high of 81.0 (baseline 50) compared to 75.9 in the second quarter, further into negative territory.

The Policy Uncertainty Index was launched in early 2016. The role of policy uncertainty has loomed large in much of the recent economic debate in South Africa and has important implications for business confidence and the investment climate in the country, professor Raymond Parsons, economist at the NWU Business School, says.

The policy uncertainty is expressed as a net balance, the net outcome of positive and negative factors affecting the calibration of policy uncertainty.

The PUI is expressed as a net balance – the index is the net outcome of positive and negative factors influencing the calibration of policy uncertainty over the relevant period. The index has three elements that show the following convergence:

• The media data reflected an increase in references to policy uncertainty;
• The survey of economists assessed policy uncertainty to be broadly unchanged at its level for the second quarter; and
• The University of Stellenbosch’s Bureau for Economic Research (BER) survey of manufacturers experiencing policy/political uncertainty was up from 80 to 85.

ALSO READ: Policy Uncertainty Index drops slightly while global and local uncertainty remain

Policy uncertainty and the global economic outlook

The International Monetary Fund (IMF) will soon update its overall economic forecasts at its annual meeting in October. Earlier IMF growth projections for the world economy were revised upward from 2.8% to 3% for this year and from 3% to 3.1% in 2026.

The IMF believes a modest decline in trade tensions, “however fragile”, contributed to the resilience of the global economy so far. Global trade policy nevertheless remains highly uncertain and therefore the IMF broadly assessed the risks to the global economy for now as still on the downside side.

The Organisation for Economic Cooperation and Development (OECD) projected slower global economic growth, from 3.3% in 2024 to 2.9% in 2025 as well as 2026. The slowdown is forecast to be more obvious in the US, Canada, Mexico and China, but with modest growth in the Euro zone.

The US Fed cut interest rates by 25 basis points in September for the first time this year, as weakness in the jobs markets overshadowed fears that US tariffs would worsen inflation.

ALSO READ: Policy Uncertainty Index drops sharply due to various local and global risks

Policy uncertainty and the domestic economic outlook

According to the index, the most positive recent news on the domestic front was from Statistics SA that announced a better-than-expected gross domestic product (GDP) growth figure of 0.8% for the second quarter, after only 0.1% in the first quarter.

The incipient economic recovery not only accelerated but also broadened across several more sectors of the economy. GDP growth in 2025 is now expected to be in the region of 1-1.2%.

The report points out that several factors contributed to strengthening South Africa’s GDP performance, including Eskom’s outlook for the next six months projecting no load shedding. Contained inflation and lower interest rates have also been supportive of SA’s gradual economic recovery.

However, negative factors strongly dominated the Policy Uncertainty Index for the third quarter, including an uncertain export outlook and the continued weakness in total fixed capital formation needed to promote higher sustained job-rich growth.

Parsons says it is important that a sufficient number of firms feel in the coming year that economic and political prospects justify their making fresh plans for expansion.

Another serious vulnerability is that high frequency data for the third quarter remained mixed and recent business sentiment indices reflected persistent weakness, including possible slowing consumer demand.

ALSO READ: Good news about economy, but policy uncertainty in gas and petroleum – BLSA

Factors causing policy uncertainty in SA

According to the report, uncertainty was created by factors such as South Africa’s failure so far to secure a new trade agreement with the US, Agoa that is due to expire end September, continued crime and corruption challenges and the negative impact of further increases in Eskom tariffs on business and the economy.

Parsons points out that the economic recovery still needs strong support. “Although some progress has been made with growth-friendly structural reforms, to reduce policy uncertainty the implementation process requires more urgency, pace and direction.

“Irreversibility of growth-oriented reforms means ensuring that the leadership, structures, capacity and culture are in place that will guarantee the right trajectory of results for the foreseeable future.”

ALSO READ: Policy Uncertainty Index falls, confirming uneven economic recovery

Several positive economic trends identified in Policy Uncertainty Index

The Policy Uncertainty Index notes that there are several positive economic trends for South Africa in the third quarter to build renewed growth, but these have for now again been dominated by both global and domestic negative factors.

Parsons says the economic recovery still needs strong support.

“Although progress has been made with some structural reforms, the implementation process now requires much more momentum. A greater sense of urgency therefore needs to be injected into the pace and implementation of South Africa’s growth-friendly economic reforms to demonstrate more tangible results.”

He says there must also be a stronger perception of irreversibility to create policy certainty.

“Irreversibility of growth-oriented reforms means not only being satisfied with immediate better arrangements, but ensuring that the leadership, structures, capacity and culture are in place that will guarantee the right trajectory of results for the foreseeable future.

“These are the key drivers that will move the Policy Uncertainty Index closer to the positive territory required to boost investor confidence to the levels needed in South Africa for much higher investment and growth.”