Reform momentum and fiscal repair: South Africa’s slow shift toward stability
• South Africa’s growth: South African economy’s real GDP was 0.7% higher in H1-2025 than it was during the corresponding period in 2024. The uncertainty around tariffs was already weighing on the economy in the second quarter, but the full impact only materialized in the third quarter, when the 30% “reciprocal tariff” on South African exports to the US took effect. At the same time, there has been a vast improvement in reliability of electricity supply that has led to almost no load-shedding, benefiting, most especially, the country’s electricity-intensive sectors. It has also restored some measure of confidence. In addition, logistics have shown notable improvement on the back of improved efficiency at Transnet.
• SA bonds: Non-residents remained net buyers of SA bonds in 2025. Consequently, cumulative net purchases of JSE-listed bonds by non-residents rose significantly in the first nine months of 2025 compared with the same period in 2024. The sustained net purchases of South African bonds by non-residents further occurred against a backdrop of strengthening global sentiment.
• FATF greylisting: South Africa officially exited from the Financial Action Task Force (FATF) greylist following the FATF Plenary meetings held in October 2025. We expect this development to bolster confidence in South Africa’s financial system, reduce compliance-related transaction costs, and enhance the country’s reputation as a reliable investment destination.
• Credit rating: S&P Global Ratings upgraded South Africa’s foreign-currency long-term sovereign and its local-currency long-term credit ratings and maintained a positive outlook. This marks the first sovereign credit rating upgrade for South Africa by any major rating agency in more than 16 years.
• Production: There was increased activity in 8 out of 10 of South Africa’s main economic sectors. Mining was the fastest growing sector during Q2-2025 following contraction during both Q4-2024 and Q1-2025. The expansion was driven mainly by higher output in platinum group metals (PGMs), gold, and chromium ore. However, South Africa’s mining sector faces a more uncertain external environment with increased trade fragmentation. Meanwhile, following its strong performance during Q4-2024 and Q1-2025, agriculture increased again during Q2-2025. Yet while there was a decline in the agribusiness confidence index in Q3-2025, the index’s current level indicates that agribusinesses remain broadly optimistic about operating conditions in South Africa.
• Domestic demand: Domestic demand increased from the first quarter to the second quarter of 2025. This came on the back of an increase in final consumption expenditure by households and final consumption expenditure by government, while gross fixed capital formation once again contracted. Despite the overall contraction in gross fixed capital formation in Q2-2025, it is somewhat encouraging that real fixed investment by private business enterprises continued to expand during the quarter. However, the broader decline in aggregate investment underscores the lingering fragility of investment sentiments in South Africa. This weakness is consistent with the subdued readings of the Business Confidence Index, which continue to signal caution among firms regarding the economic outlook.
• Employment: There was a notable improvement in the country’s official unemployment rate as it declined by 1.3 percentage points from Q2 to Q3-2025.
• Inflation: South Africa’s annual consumer inflation rate increased in October 2025 from September. October’s inflation rate was also the highest since September 2024. This placed inflation above the new inflation target of 3%, but still within the tolerance band of 1 percentage point.
• Interest rates: The South African Reserve Bank lowered the benchmark interest rate by 25 basis points from 7% to 6.75% at its final meeting of the year in November. This was following a pause in policy normalization during the MPC’s meeting in September. As a result, the prime lending rate also declined from 10.5% to 10%.
• Exchange rate: The SA exchange rate has shown a sustained strengthening trend over the past months. The rand has benefited from both external tailwinds such as the broad US dollar weakness and improved global risk appetite, as well as domestic improvements, particularly around energy availability and logistics reform momentum, and overall lower inflation. Continued trade surpluses, driven by subdued imports due to sunken growth, have also underpinned the currency buoyancy.
• Fiscus: Fiscal consolidation has been one of National Treasury’s top priorities for the past number of years., This is because of South Africa’s government debt ballooning, especially since 2008. Against this backdrop, the National Treasury’s fiscal strategy, as set out in the 2025 Medium-Term Budget Policy Statement, seeks to anchor stability, safeguard fiscal sustainability, and build resilience against future shocks. Despite a subdued domestic growth environment, Treasury indicates government remains on track to stabilize public debt in FY2025/26, marking the first time since the 2008 financial crisis that debt will not rise as a share of the economy. Focus on generating and maintaining primary fiscal surpluses is the policy objective.
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