Standard Bank shares good news about South Africa

South Africa appears to have turned a corner, with Standard Bank flagging improved confidence and economic activity in the country. 

Crucially, it expects this momentum to continue into 2026, as reforms gain traction and the government’s financial health improves.

Better-than-expected economic data has also provided a boost to sentiment in the country, with unemployment coming down and growth picking up to above 1.5% on an annual basis. 

While the progress is still small, it is meaningful, and after a decade of 0.8% annual growth, it indicates the tide is turning. 

The bank shared this positive message in its voluntary trading update for the ten months to 31 October 2025. CFO Arno Daehnke further unpacked the bank’s positivity in an investor call before the closed period. 

“In recent months, we have seen an improvement in disbursements, activity, and credit trends in South Africa. We expect this momentum to continue into 2026,” Daehnke said. 

The bank had previously flagged an improvement in confidence and activity from clients following the formation of the Government of National Unity (GNU). 

CEO Sim Tshabalala has been a significant proponent of the ongoing partnership between business and government, which is driving tangible results. 

“South Africa provides an incredible example of how government and business ought to work together in a way that is properly governed and structured,” Tshabalala said. 

This is largely in reference to the partnership between Business for South Africa (B4SA) and the government, which has focused on the energy crisis, logistical inefficiencies, and crime and corruption.

“We are working hammer and tongs in partnership to try to get GDP growth to above 3% for this year, and that is completely possible,” Tshabalala said. 

The CEO explained that this partnership was built on the understanding that government and business should focus on what they do best in their respective spheres. 

“Respecting that business is not Caesar and that Caesar must perform the role of Caesar is important,” he said. 

“They must set up the legal and regulatory environment, but then frankly get out of the way so that business can execute and do what needs to be done.”

Miracle on the cards

The good news shared by Standard Bank has been echoed by analysts, which have pointed to improving state finances and a new inflation target as positive signs.

Symmetry chief investment strategist Izak Odendaal explained that the past few weeks have been remarkable for South Africa. 

Odendaal said many countries are facing similar financial challenges to South Africa. Crucially, it is doing something about runaway government debt and is set to stabilise it as a share of GDP in the current financial year. 

Fiscal policy is on the right path, as indicated by S&P Global’s credit ratings upgrade, and removal from the FATF grey list is a sign of improved local governance, he said. 

Lower interest rates will continue to support the rebound in consumer spending, which will drive economic growth higher in the short term. 

What is needed now is for the fixed investment cycle to also turn, which it should, given the reforms that are being implemented. 

All these things contribute to lowering the country risk premium, the additional compensation any foreigner demands to buy local assets. 

Given low domestic savings rates, we need these capital inflows. A sustained lower country risk premium will give the MPC even more reason to cut rates, since it is currently embedded in its models through a high “neutral real interest rate”. 

There is still a lot that can go wrong, but the biggest risks seem to be external, rather than domestic, for once.

If these risks don’t materialise, South Africa can continue to turn the vicious cycles of the past 15 years into virtuous ones, Odendaal said. 

He explained that it has not been easy, with the National Treasury’s process of fiscal consolidation coming at some cost through slower economic growth.

 Odendaal said fiscal consolidation is a painful process of constraining government spending and raising tax revenues, with taxpayers essentially paying more and getting less in return. 

However, it has been necessary since South Africa followed the alternative approach of funding spending with debt for too long. The government now spends a fifth of tax revenues on interest payments, diverting funds away from other important social objectives.

The 2025 Medium-Term Budget Policy Statement is not a turning point in fiscal policy, as it is the culmination of years of effort. But it represents a turning point of sorts in investor perception of South Africa.

However, the country still needs faster economic growth as continued fiscal consolidation is not sustainable over the long run. 

A bigger economy organically generates more tax revenues and increases the government’s capacity to service existing debt.

Putting spending and revenue side by side, the difference is the budget balance, which has been in deficit since 2008, meaning that spending consistently exceeded tax income. 

The gap was filled by borrowing, with the government’s outstanding debt rising to R5.5 trillion or 77% of GDP. This, in turn, drove the surge in annual interest payments, which doubled from 2.5% of GDP a decade ago.

If interest payments are excluded, a much better picture emerges. This is the so-called primary balance, which has been in surplus for the past three fiscal years and is projected to increase further over the medium term. 

This essentially means that revenues now cover non-interest spending, with a bit left over to start paying down debt.