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South Africa’s economy is recovering and the outlook for 2025 fiscal year looks good. According to the International Monetary Fund (IMF), real GDP growth is expected to accelerate to 1.5 percent in 2025.
The acceleration is as a result of a recovering private consumption and investment supported by stable electricity generation. The performance of the economy will continue on an upward trajectory as annual growth is expected to reach 1.8 percent in the medium term as investment improves gradually on the back of on-going reform efforts to address electricity and logistics bottlenecks.
The IMF says inflation is projected to average 4 percent in 2025 and stabilize at the midpoint of the SARB’s target range (4.5 percent) in the medium run. With fiscal deficits projected to stay elevated over the medium term, public debt is expected to continue to rise.
South Africa had to navigate a plethora of economic challenges over the years, including power shortages and disruptions to rail and port operations constrained growth to 0.7 percent in 2023; the IMF observed that activity remained subdued in 2024, given election-related uncertainty in the first half of the year and severe droughts.
Nonetheless, power generation was stabilized and, following the formation of a reform-oriented Government of National Unity (GNU) in June, consumer, business, and investor confidence rebounded. Inflation moderated from 5.9 percent in 2023 to an estimated 4.5 percent in 2024, with the central bank cutting interest rates by 50 basis points in 2024. While still high, unemployment declined to an estimated 32.8 percent in 2024. Government deficits remained elevated, pushing public debt to above 75 percent of GDP by end-2024.
“The outlook remains marked by high uncertainty, with the balance of risks tilted to the downside. Key downside external risks relate to a further deepening of geo-economic fragmentation and intensification of protectionist policies, an escalation of on-going conflicts, a deeper slowdown in main trading partners, or slower global disinflation and tightening financial conditions. Domestically, resistance to and delays in the implementation of needed reforms could add to downside risks. On the upside, faster and more ambitious reform implementation by the new government, or stronger global growth, could boost confidence and growth,” said the IMF.
