Dark clouds gather for South Africa’s economic recovery

The Reserve Bank has revised its outlook for South Africa’s economic growth in 2025 from 1.8% to 1.7%, signalling that the economy’s bounce back faces significant hurdles. 

This outlook was outlined in the bank’s Monetary Policy Committee (MPC) statement on 20 March, where it decided to leave interest rates unchanged. 

In the statement, the MPC said that there are downside risks to South Africa’s economic growth, meaning that growth may be revised lower again in future. 

The main driver of the increased likelihood of changes to this outlook is the rising volatility in the United States. 

“The world is experiencing extreme levels of uncertainty. Trade tensions have escalated, and longstanding geopolitical relationships are shifting abruptly,” Reserve Bank Governor Lesetja Kganyago said. 

“In these circumstances, the global economic outlook is unpredictable.” 

In particular, Kganyago said economic sentiment in the United States is volatile at the beginning of 2025, making it increasingly difficult to forecast. 

The year started with surging stock prices and a stronger dollar. More recently, however, the disruptive effects of tariffs and policy uncertainty have come into focus. 

Growth expectations have now slipped, the dollar has weakened, and US stock markets have given up recent gains. By contrast, asset prices in other economies have been resilient, with most major currencies strengthening against the dollar.

Inflation in advanced economies remains elevated, with both headline and core above 2% in the United States, the Euro area, the United Kingdom and Japan. 

Some policy adjustments by major central banks are still expected this year, but rates are likely to remain high for longer, given new inflation risks.

In South Africa, economic growth picked up in the fourth quarter of 2024 as household spending recovered and agricultural production bounced back. 

The Reserve Bank said the main driver of increased household spending was lower inflation and withdrawals from the two-pot retirement system. 

“That said, the overall growth picture was disappointing, with other sectors showing weakness. Growth for 2024 as a whole was 0.6%, marginally below our expectations and slightly worse than in 2023.”

“We have now revised down our 2025 growth forecast slightly, to 1.7%, while leaving the outer years unchanged.” 

“We attribute lower growth partly to subdued demand and partly to lingering supply-side fragilities. We assess that the risks to growth are to the downside.,” the MPC said in the statement.