SA’s Policy Uncertainty Index still negative, but improving

South Africa’s Policy Uncertainty Index for the fourth quarter is still in negative territory, but positive factors over the past three months have outweighed the negative ones, with the economy entering 2026 on a note of cautious optimism.

The NWU Business School’s Policy Uncertainty Index for the fourth quarter showed a welcome easing to 64.9 from its record high of 81.0 in the third quarter. Although still in negative territory, the index calibration suggests the economy may have reached a turning point, Professor Raymond Parsons, economist at the NWU Business School, says.

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 country’s investment climate, Parsons says.

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

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What is the Policy Uncertainty Index?

The policy uncertainty index 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 convergence of:

• 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.

Parsons points out that growth prospects for most parts of the world are positive but modest overall. The International Monetary Fund (IMF) projects global growth of 3.2% in 2026, but elevated global uncertainty is now seen as the ‘new normal’, he says.

“The universal global challenge is how countries can turn uncertainty into opportunity by strengthening resilience, restoring stability and laying the groundwork for durable growth.”

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Economic growth can alleviate policy uncertainty

The US economy appears to be facing 2026 with a mix of strength and vulnerabilities. Although some slowdown is expected, next year’s growth rate is positive, with growth projected to be close to its potential of 2%. Nonetheless, the US economic picture is not free from risks, including the AI stock market ‘bubble’, according to the index.

The IMF as well as the World Bank have described the Sub-Saharan Africa economy as ‘resilient’ with steady real gross domestic product (GDP) growth of over 4% next year, but emphasised the downside risks arising from global trade uncertainty, high external debt and a major jobs deficit.

In the third quarter, the South African economy showed its fourth consecutive increase in economic activity, although it was off a low base. GDP forecasts for 2026 are generally modestly higher, ranging from 1.1% to 1.6% and averaging out at about 1.4%. Overall unemployment, although still unacceptably high, was slightly lower in the third quarter of 2025 than in the second quarter, according to the latest Statistics SA labour survey.

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Recent financial wins provide hope amid lingering policy uncertainty

There have been several recent positive financial developments, such as a well-received Medium Term Budget Policy Statement (MTBPS), South Africa being taken off the ‘greylist’, a move to a lower 3% inflation target and Standard and Poor’s decision to raise the country’s investment status for the first time in nearly two decades.

The Monetary Policy Committee (MPC) also cut interest rates by another 25 basis points. The successful G20 summit South Africa recently hosted was also a positive dynamic.

However, there are always negative factors to take the shine away from the positive factors. Negative factors elevating economic uncertainty include persistently high crime levels, as well as the impact of American tariffs on South Africa’s export prospects in the absence of a new trade agreement with the US.

Parsons says in the coming year, a sufficient number of firms must feel that growth prospects justify their making fresh plans for expansion.

“The challenge remains for South Africa to ensure the robust implementation of half-forged growth-friendly policies and projects that will further reduce policy uncertainty. Elevated policy uncertainty is reversible.

“South Africa’s economic steersmanship must continue to keep policy firmly on track, so that next year the tailwinds will overcome any headwinds.

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Policy certainty fundamental for investor community

“Among the fundamental structural reform items is policy certainty. Simple but fundamental to the investor community. Remember that you cannot force people to invest, but you can create an environment which makes it easier to invest, create jobs, and hey presto, develop the country,” the Policy Uncertainty Index quotes former minister of finance, Tito Mboweni.

Parsons says the reduction in the Policy Uncertainty Index and other economic indices suggests that the economy may have reached a turning point. “The economy enters 2026 on a note of cautious optimism.

“It also demonstrates that elevated policy uncertainty is reversible if the right decisions are taken and implemented. The basic message of the recent 2025 MTBPS was that accelerated structural reforms remain the most effective pathway to much higher, job-rich growth.

“Therefore, the challenge remains the robust implementation of half-forged, growth-friendly policies to further reduce policy uncertainty. Implementation is still the key – ensuring that reform commitments translate into tangible improvements in confidence, stability, investment, jobs and service delivery.

“South Africa’s economic steersmanship must therefore continue to keep the economy on track, so that over the next year, the tailwinds will overcome any headwinds.”