South Africa’s economy has hit rock bottom

While South Africa’s economy is unlikely to see a boom in the coming years, the country is on the right track to escape the stagnation it has endured for the past decade.

South Africa’s economic growth is expected to reach over 2% in 2027, driven by higher investment in infrastructure and other fixed assets.

This is according to Momentum Investments economists Sanisha Packirisamy and Tshiamo Masike, who recently outlined economic trends in South Africa.

One such trend was that the local economy is catching a “quiet current” that is signalling an upward growth pulse.

Packirisamy and Masike explained that South Africa’s GDP growth initially disappointed expectations in 2025.

The National Treasury went from projecting 1.4% GDP growth in its May 2025 Budget to expecting 1.2% in the Medium-Term Budget Policy Statement in November 2025.

Packirisamy and Masike said this disappointing growth is the result of lacklustre fixed investment, which failed to ignite due to persistent political uncertainty.

Nonetheless, they said South Africa’s growth should post at a slightly firmer 1.6% in 2026, supported by a combination of cyclical relief and incremental structural gains.

These factors, the economists believe, are unlikely to result in an economic boom but will mark a clear shift from the stagnation South Africa has endured for more than a decade. 

During the first fifteen years of democracy in South Africa, GDP growth averaged 3.6% per year, reaching a peak of 5.6% in 2006.

However, during and following the era of State Capture, South Africa struggled to recover, and the economy achieved an annual growth rate of only 1.1% between 2009 and 2023.

Now, Packirisamy and Masike believe the country is on track to escape this stagnation, projecting above 2% in 2027.

In 2024, the Government of National Unity set a medium-term GDP growth target of 3% for South Africa.

The graph below, courtesy of Momentum Investments, shows the projections of South Africa’s real GDP in 2025, 2026 and 2027.

Fixing South Africa’s weak link

Packirisamy and Masike explained that South Africa’s higher growth in the coming years will be driven by broadening fixed investment gains.

Signals of progress in increasing fixed investment are already showing, with corporate sector credit growth firming for renewable energy and working capital requirements.

In the coming years, fixed investment will be increased as the country’s private electricity build-out scales, rail and port reforms move from plans to execution, and early logistics partnerships ease bottlenecks.

In addition, Packirisamy and Masike said households are likely to provide a steadier spending floor as inflation settles, real wages turn positive and interest-rate relief filters through.

South Africa’s meagre economic growth over the past few years has primarily been supported by consumer spending.

While an important factor for economic growth, consumer spending is considered a highly fragile and narrow lever that cannot drive sustained growth.

This is because much of this spending is on imported goods and based on short-term cyclical factors, such as inflation, interest rates and two-pot withdrawals. 

Therefore, increasing fixed investment in productive assets like infrastructure is considered critical to unlocking stronger growth in South Africa.

Moreover, Packirisamy and Masika said a healthier terms-of-trade position creates a clearer runway for South Africa’s growth to edge higher. 

One of the strongest signs of South Africa’s recovery was S&P Global’s credit rating upgrade, announced in November 2025.

This rating upgrade, South Africa’s first in 25 years, affirmed S&P Global’s confidence in the incremental gains the country has made so far, particularly in terms of fiscal prudence and economic growth.

Another feather in South Africa’s cap was that S&P not only upgraded the country’s rating but also maintained a positive outlook, signalling its confidence in the economy’s recovery.