Best news about South Africa’s economy since 2018

The Reserve Bank believes that South Africa is on track for its longest uninterrupted phase of economic growth since 2018, with the country’s fundamentals gradually improving. 

However, this growth has largely been driven by surging household spending, which is up more than 3% year-on-year, compared to an estimated 1.3% for the broader economy. 

This means the country’s economic growth, albeit small, is very fragile as it is heavily reliant on cyclical factors that are likely to change. 

In particular, the surge in consumer spending has been driven by early withdrawals from retirement savings under the new two-pot system. 

This has been coupled with lower inflation and interest rates in South Africa, freeing up disposable income for households. 

The impact of these factors will roll over in the medium-term, making them an unsustainable driver of faster economic growth. 

Despite this, the Reserve Bank’s Monetary Policy Committee (MPC) said that South Africa’s economy is in the best shape it has been in for years. 

“Turning to South Africa, growth looks steadier. The economy has expanded for four consecutive quarters and the available data suggest it grew further in the most recent quarter,” Governor Lesetja Kganyago said.

This would ebt he longest unbroken growth phase for the South African economy since 2018 and potentially mark an end to the country’s lost decade, if sustained. 

While household spending has been the main growth driver, there are also signs that fixed investment is beginning to pick up after contracting for the first half of 2025. 

In the third quarter of the year, South Africa’s GDP data revealed that fixed investment has rebounded slightly. This needs to be sustained to drive structurally higher economic growth in South Africa. 

“Our forecasts continue to show growth moving somewhat higher, approaching 2% over the medium term. We see some upside risks to these projections,” Kganyago said. 

Reform progress

The Reserve Bank has repeatedly voiced its concern regarding the binding constraints placed on South Africa’s economy by an unstable electricity supply and an inefficient logistics network.

These structural constraints have been eased somewhat by the government’s steady progress in implementing its reform agenda. 

This agenda aims to open up the electricity and logistics sectors to private competition, unlocking investment, making them more efficient, and improving economic outcomes.

Coupled with this has been an effort to improve the government’s financial health through fiscal consolidation. This process has been bearing fruit. 

Stanlib chief economist Kevin Lings said there has been meaningful further improvement in key policy reform initiatives, which are boosting South Africa’s economic prospects. 

These include further evidence of fiscal consolidation by the National Treasury, which contributed to S&P upgrading South Africa’s international credit rating, and a downward revision to the inflation target to a point target of 3%. 

Other developments were Transnet signing a 25-year partnership with International Container Terminal Services to manage the Durban Container Terminal Pier 2. 

This has come with Transnet awarding conditional approvals to 11 private train operating companies to operate on its freight rail network across 41 routes and six major corridors.

With regard to the electricity sector, more than 488 companies have registered their intention to invest in renewable energy projects with a total output of almost 6,000 MW. 

While these and other growth initiatives are extremely encouraging, it will take time for the policy reforms to translate into sustainable higher economic growth, Lings cautioned.  

Consequently, Stanlib expects South Africa’s economic growth rate will improve only modestly in 2026 to around 1.7%, up from an estimated 1.3% in 2025 and 0.5% in 2024. 

Importantly, however, ongoing implementation of the key policy reforms should combine to lift the growth rate above 3% over the next 3-5 years.

This rate will be fast enough for the country to make a meaningful impact on unemployment, improve individual lifestyles, and provide significant investment opportunities.