South Africa confronts fiscal strain and global uncertainty in early 2025
• South African growth: Continuing from 2023’s muted growth, the South African economy recorded another lackluster growth rate in 2024. The annual growth also came in lower than the Treasury forecast of 1.3% at the beginning of the year. The insipid growth was registered despite a marked improvement in electricity supply, especially in the latter part of 2024. While the electricity supply has largely stabilized, an encouraging development for economic activity, we anticipate that the positive effects on South Africa’s GDP will unfold gradually, as businesses take time to rebuild capacity, restore confidence, and respond to improved operating conditions.
• The SA bond market: Following a relatively stable period between October 2024 and March 2025, characterized by moderating inflation, declining inflation expectations, and a supportive credit rating outlook, South African bonds initially performed well. Yet, in recent months, South Africa's government bond market has come under renewed pressure amid a marked shift in both global and domestic conditions. As a result, South African government bond yields have risen, and the yield curve has steepened.
• SA trade with the US: Trade plays a vital role in the South African economy, and recent developments concerning the country’s relationship with the US as well as President Trump’s unfolding tariff measures, especially those concerning South Africa, have caused concern. The US is an important trading partner for the country. At the same time, South Africa’s continued inclusion in the African Growth and Opportunity Act (AGOA) has faced increasing uncertainty in recent years. Meanwhile, the global economy, including many of South Africa’s trade partners, is also contending with impact and potential impact of the new tariffs by the Trump Administration.
• Agriculture: During the fourth quarter of 2024, the agricultural sector experienced a strong rebound, with the robust recovery making agriculture the largest contributor to overall real GDP growth. In addition, the agribusiness confidence index rose by 11 points between Q4-2024 and Q1-2025, reaching its highest level since Q4-2021. This marked the third consecutive quarterly improvement, indicating sustained optimism among South African agribusinesses regarding the country’s business environment.
• Households: Domestic demand showed signs of modest improvement in the final quarter of 2024, driven largely by household consumption. Looking ahead, household consumption is expected to remain the primary pillar of domestic demand in the short-to-medium term, supported by low inflation, softening borrowing costs, and the remaining impact from the two-pot retirement withdrawals. However, the decision not to adjust income tax brackets for inflation will reduce real disposable income at the margin and may temper spending momentum. Additionally, the country’s unemployment rate increased by 1 percentage point from Q4-2024 to Q1-2025, representing another headwind for households.
• Inflation: South Africa's inflation outlook has improved notably from the sharp peaks of 2022, mirroring the broader global disinflation trend.
• The SA exchange rate: The rand exhibited notable volatility in early 2025, reflecting shifts in both global and domestic conditions. After a period of gradual appreciation against the US dollar in the first quarter, benefiting from a broadly weaker dollar and improving sentiment toward emerging markets, the rand began to depreciate sharply in April. The currency reached a one-year low, with the exchange rate peaking at R19.69 per US dollar by April 9, before gradually recovering to around R18.05 per US dollar by mid-May.
• The fiscus: South Africa’s tax revenue outlook for 2025 reflects the challenges of a constrained economic environment and the ongoing imperative to restore fiscal sustainability. The 2025 Budget Review, released in March, introduced measures aimed at raising additional funds. However, one of the most significant revenue-raising measures, the proposed VAT rate hike, was reversed following public and political pushback, creating a notable deviation from the original fiscal consolidation plan.
Now read on...
Register to sample a report