SA’s economic growth outlook growing increasingly dim

South Africa’s economic outlook is growing increasingly dim as various organisations and analysts start cutting their economic growth outlook for the country to only 1.5%.

Moody’s Ratings and the Bureau for Economic Research both cut South Africa’s economic growth outlook to 1.5% from 2% expected previously, while Prof William Gumede, associate professor at the Wits School of Governance writes that National Treasury’s gross domestic product (GDP) growth forecast of 1.9% in 2025 is based on optimistic assumptions.

According to Moody’s Global Macro Outlook 2025-26, a global growth slowdown is underway, with policy uncertainty adding risks. The agency warns in its report that tariff increases on countries and high sectoral tariffs on products, such as steel and aluminium, will weigh on global trade and investment decisions, with considerably negative growth consequences for most G20 economies.

“Given these developments, we have cut our forecast for global growth sharply to 1.9% in 2025 and 2.3% in 2026 from our forecast in February, which called for a more modest slowdown to 2.5%. Policy uncertainty weighs on a global economy that was already slowing.

“Uncertainty surrounding global economic policies is likely to take a toll on consumer, business and financial activity. Despite a pause and reduction in some tariffs, policy uncertainty and trade tensions, especially between the US and China, are likely to dampen global trade and investment, with consequences across the G20.

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Grim global and South African economic growth outlook

Moody’s now expects that US GDP growth will cool to 1% in 2025 and 1.5% in 2026, and China’s real GDP growth to slow to 3.8% in 2025 and 3.9% in 2026. The agency also cut growth forecasts for Canada, Mexico, Germany, France, Italy, the UK, Australia, Korea, Japan, India, Indonesia and South Africa.

For South Africa, Moody’s cut its real GDP projections by 0.2% from its February projection to 1.5% and is more optimistic than the IMF, which expects South Africa’s economy to grow by only 1% this year and only 1.3% in 2026.

Meanwhile, Lisette IJssel de Schepper, chief economist at the BER, said at a BER conference on Tuesday that South Africa’s growth is also affected by tensions in the government of national unity (GNU) and concerns that it will not hold and function effectively after the dispute about Budget 2025 almost caused it to collapse.

However, she said the biggest source of uncertainty at the moment is around tariff policy. “The risk of sudden policy changes remains real, such as Monday’s foreign film tariff announcement. We only expect price increases and product shortages to affect US consumers from mid-June.”

She also pointed out that real consumer spending, which is necessary for economic growth, accelerated from 0.7% in 2023 to 1.0% in 2024, but consumers are still worse off in real per capita terms.

“Alarmingly, the 0.7% growth in consumer income in 2024 was virtually fully derived from the roughly R40 billion two-pot withdrawals since 1 September, and despite the two-pot boost in 2024, real per capita disposable income was down 1.3% compared to 2022 and 2.4% compared to 2018.”

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Factors that can affect global and local economic growth

De Schepper said global factors that could warrant a change in the BER’s baseline forecast include severe financial market instability that triggers a real economic downturn, a sudden reversal in the oil price and continuing geopolitical turmoil in the Russia-Ukraine war, the Middle East and the Taiwan Strait.

She said domestic factors include the return of sustained and/or higher stages of load shedding, negative shocks to South Africa’s production capacity and/or export potential, the possibility of social unrest, protests and strike action and revisions to historic GDP data.

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Are we a 1% economy?

De Schepper says the BER made a significant downward adjustment to its near- and medium-term real GDP forecast, with some members of the team arguing for an even lower forecast, questioning why we are not a permanent 1%-growth economy as we have been for the last fifteen years or so.

“It is irresponsible to build a forecast on hope. During the second half of 2024, there was a real sense of urgency around structural reform, sentiment was improving, and the consumer benefited from some (temporary) windfalls.

“Our forecast of the time was not based on hope, but on the expectation of some crucial puzzle pieces finally falling into place. Unfortunately, some puzzle pieces are now sliding from the table once again (slow progress on structural reform, consumer windfalls turning into headwinds), and some pieces have been forcefully thrown on the floor by Trump.”

However, she said, it is also irresponsible to overreact when there is so much uncertainty. “While slow, there is still some progress on the structural reform front. Load shedding and other structural constraints on the local economy should continue to ease, albeit not as fast as we anticipated.

“Indeed, when it comes to exports and investment, our level is so depressed that a little goes a long way to lift overall GDP growth. South African consumers have proven to be resilient before, but will continue to be tested.”

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Treasury too optimistic about South African economic growth

Gumede writes in an occasional paper for the Inclusive Society Institute titled “Going for growth: Structural reforms needed for South Africa’s economic recovery”, that Treasury’s forecast fails to reflect the country’s ongoing structural obstacles to growth, including its public service, governance, policy and debt woes.

“If South Africa stays on its current economic policy path or becomes more economically populist and if it is unable to strike a compromise deal with the US, it is unlikely to get even the 1.9% GDP economic growth predicted by Treasury in the 2024/2025 Budget.

“Treasury predicts real GDP growth of 1.9% in 2025, an upward revision from the 1.7% projected in the 2024 Medium Term Budget Policy Statement (MTBPS). Over the medium term, economic growth is projected to average 1.8%. The past decade has seen the economy grow only 0.8% per year, while the country’s population has been growing at 1.5% per year.”

Gumede says the Treasury growth forecasts assume higher investment, recovery in household consumption, declining inflation, moderately rising employment, improving household balance sheets and easing structural constraints on growth. However, he believes Treasury’s growth forecast appears to be overly optimistic.

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Treasury not considering continued obstacles to economic growth

“Treasury does not appear to consider the continued structural obstacles to growth, such as the continued lack of state capacity due to public service, state-owned entities (SOEs), infrastructure and municipal failures caused by corruption and incompetence and the many anti-growth policies.

“High levels of business regulation also undermine growth. Moreover, global uncertainties threaten economic growth. US President Donald Trump unleashed widespread global tariffs, including 30% against South Africa, and has cut development funding to the country.”

Gumede says the US withdrawal of development aid, which included significant amounts for state, public, and civil society institutions, left a big hole in South Africa’s public finances.

“Instead of infrastructure-led growth, South Africa got consumer and welfare-led growth, which is not sustainable. It is not possible to change the country’s growth path without tackling the structural inhibitors such as corruption, incompetence, state, SOE, DFI and municipal failure and anti-growth, anti-business policies.

“A new growth path must be based on boosting infrastructure, creating a manufacturing mining processing complex, especially around critical minerals, an agriculture industrial complex, expanding renewable energy, establishing a biofuels industry, expanding SMEs and fostering new industries that South Africa lacks, but which the world needs. Such a new growth path has to be collaboratively led by government, private sector, civil society and professionals.”