Dark clouds gather over South Africa’s economy

The National Treasury has significantly changed its economic growth projections for 2025, revising its March projection of 1.9% down to 1.4%.

Finance Minister Enoch Godongwana presented the third version of the National Treasury’s proposed Budget for the 2025/26 financial year on Wednesday, 21 May 2025.

In this Budget 3.0, the National Treasury withdrew its earlier proposals to increase South Africa’s value-added tax (VAT) rate.

Instead, it proposed several other measures to fill its funding gap, including an increase in the general fuel levy and not adjusting the country’s personal income tax brackets for inflation.

Compared to the National Treasury’s March estimates, it has revised down tax revenue projections by R61.9 billion over the next three years.

The National Treasury also revised down its economic growth projections for South Africa over the next three years.

In its March Budget, the Treasury expected South Africa’s real GDP growth rate to be 1.9% in 2025, 1.7% in 2026, and 1.9% in 2027.

However, in the May Budget, these projections have changed to 1.4% in 2025, 1.6% in 2026, and 1.8% in 2027.

Godongwana explained in his presentation that South Africa, as a small, open economy, is dependent on global trade and financial inflows.

He said this makes the country particularly exposed to global economic developments, including the heightened trade tensions and lower global economic growth projections seen so far this year.

Godongwana said the global economy is facing heightened trade tensions and elevated policy uncertainty with worrying economic consequences.

The International Monetary Fund now projects global growth at 2.8 % in 2025. This is 0.5

percentage points lower than its January estimate.

Similarly, global trade is projected at 1.7% in 2025, which is also far lower than the January estimate.

At the same time, inflation expectations are now above central bank targets in many advanced and emerging market economies.

In addition, new trade barriers may raise inflation and prolong the cycle of higher interest rates.

Godongwana cited these factors for the National Treasury’s lower growth projections for South Africa over the next three years. “Looking further ahead, the risks to the outlook remain elevated,” he said. 

“These include the worsening global outlook, weaker-than-expected growth in the fourth quarter of 2024, the persistence of logistics constraints and higher borrowing costs.”

“These developments are a vivid reminder that we must urgently turn the tide on our economic prospects and get our fiscal affairs in order.”

The minister said faster, inclusive growth that creates jobs is the only path towards a more prosperous South Africa.

“Attaining this growth must be our national obsession. We all have a stake and a responsibility to work towards this goal,” he said.

Positively, the National Treasury said South Africa’s fiscal strategy remains on track so that the government spends less on debt-service costs and more on critical public services.

However, due to the weaker economic outlook, it expects government debt to stabilise at 77.4% of GDP this year, 1.2 percentage points higher than its 12 March estimates.