National Budget: South Africa Economic Outlook

South Africa enters 2026 with cautious optimism – hopeful that this could be the year to reverse its sluggish growth trajectory. The optimism is tempered, however, as early signs of recovery at the start of 2025 were quickly challenged by a delayed and disputed national budget process, instability within the coalition Government of National Unity, and the Liberation Day announced 30% reciprocal tariffs by the United States. These factors contributed to subdued business and consumer confidence in the earlier parts of that year.

Nevertheless, there are now indications that South Africa is gradually emerging from its low-growth trap. Real GDP growth figures for the first nine months of 2025, compared to the same period in 2024, reached 1.2%. Five industries expanded over the period January and September 2025, compared to the previous year, with the largest gains seen in agriculture, forestry and fishing (19.5%); while construction continued to contract (-4.1%). On the expenditure side, growth was driven by households (3.1%). However, government expenditure, gross fixed capital formation (GFCF) and exports all declined by -0.7%, -2.7% and -2.1% respectively.^[1]

As 2025 drew to a close, many forecast agencies expected South Africa’s real GDP growth to just exceed 1% for the year,^[2] with the National Treasury revising its forecast down to 1.2% for 2025 in November. Treasury anticipates real GDP growth will reach 1.5% in 2026 and rise to 2% by 2028.^[3] While some forecasters project medium-term growth reaching 2%, the International Monetary Fund (IMF) though has cautioned that the country is unlikely to exceed 2% real GDP growth before 2030.^[4] The main constraint remains a lack of significant investment, particularly in infrastructure. Although public-sector infrastructure plans have increased, GFCF is expected to decline for a second year in 2025, even as infrastructure remains a policy focus.^[5]

But there are positive developments that are underpinning some initial green shoots. Lower demand has resulted in subdued inflation and improved consumer purchasing power. Since September 2024, the South African Reserve Bank (SARB) has cut the repo rate by a cumulative 150 basis points.^[6] Consumer price inflation averaged 3.1% from January to September 2025 and settled at 3.2% for the year – firmly at the lower end of the SARB’s 3% to 6% target band, and the lowest in 21 years.^[7] The SARB had signalled a shift to a point target of 3% (with a 1% tolerance band) last year,^[8] a move confirmed by the minister of finance in the November 2025 Medium-Term Budget Policy Statement (MTBPS).^[9]

With a lower inflation target rate, the SARB expects that the repo rate could fall to 6% by 2027.^[10] This could support business confidence and consumer activity from 2026, though risks remain, especially in anchoring inflation expectations at 3% given historically higher public-sector inflation.^[11]

Reforms are also progressing. A significant milestone was South Africa’s exit from the Financial Action Task Force “grey list” in October 2025, after implementing a 22-point action plan to address deficiencies in anti–money laundering and counter-terrorism financing. Subsequently, in January 2026, the European Union followed suit, removing South Africa from its list of High-Risk Third Country Jurisdictions. The removal from such lists is expected to lower transaction costs, boost investor confidence, and unlock investment.^[12]

Further momentum in structural reforms is visible in the energy and logistics sectors. The electricity market is being restructured, with the establishment of the South African wholesale electricity market and the continued unbundling of Eskom. The National Transmission Company of South Africa is preparing to operate as a market operator, and a significant pipeline of private renewable energy projects is in development.^[13] The Independent Transmission Project aims to expand transmission infrastructure by 14,000 kilometers over the next decade.^[14]

Logistics reforms include opening rail networks to private operators and improving port performance. These changes are reversing declines in freight-rail volumes and reducing port congestion, with R200 billion in potential investment anticipated over five years.^[15]

Fiscal governance is improving. The MTBPS projects a wider primary surplus for 2025, with tax revenues exceeding estimates. This is attributed to reduced value-added tax refunds, better commodity prices, and improved collections. The primary surplus is expected to grow from 0.9% of GDP in 2025 to 2026 to 2.5% by 2028 to 2029, while the budget deficit narrows. ^[16]  On the back of broader reforms, saw S&P Global upgraded South Africa’s foreign currency long-term sovereign rating from BB to BB- in November 2025, with a positive outlook – the first upgrade in nearly two decades.^[17] However, debt-servicing costs still outpace GDP growth, posing long-term risks and more will need to be done to confirm prudent fiscal management and a stabilising debt-to-GDP ratio (below 78%). This could further prompt credit-rating upgrades (Fitch kept the country’s rating unchanged, while Moody’s rates South Africa the same as S&P Global)^[18], lower borrowing costs, and restore confidence.

Despite progress, many obstacles remain to turning the tide on economic growth, not the least those of crime and corruption, often undermining trust and deterring investment. Strengthening local government governance will need to be an ongoing priority in 2026, particularly as local government elections approach. Support towards this end has been extended by, for example, organisations such as the World Bank, providing a US$925 million loan to support reforms in eight major cities. ^[19]  

Externally, South Africa faces global trade and geopolitical uncertainties, especially after the imposition of US reciprocal tariffs effective from 8 August 2025, the end of the African Growth and Opportunity Act in September 2025 (now extended for Sub-Saharan Africa, though South Africa’s eligibility remains to be confirmed), and ongoing tensions with the US. This has hurt export competitiveness and market access in sectors such as agriculture and manufacturing.^[20]

As 2025 concluded, South Africa’s hosting of the G20 Summit was a diplomatic milestone, offering a platform to showcase reforms and attract investment. The event underscored the country’s commitment to multilateralism and development, both domestically and across Africa. And while many challenges remain, the country has seen notable reform momentum and improved fiscal management. Its ability to sustain this progress, anchor inflation, invest in infrastructure and attract investment will be crucial for breaking out of its low-growth trap and achieving long-term prosperity.

A previous version of this article was first published in the Deloitte Insights Global Economic Outlook 2026.

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^[1] Statistics South Africa (Stats SA), “Gross domestic product – third quarter 2025,” Dec. 2, 2025.

^[2] LSEG Workspace, “Reuter’s poll,” accessed Nov. 11, 2025; International Monetary Fund, “World economic outlook”; Oxford Economics, “Country economic forecast – South Africa,” Oct. 8, 2025; BMI/Fitch Solutions, “Bulk data export,” accessed Oct. 31, 2025.

^[3] National Treasury, “Medium-Term Budget Policy Statement 2025,” Nov. 12, 2025.

^[4] International Monetary Fund, “World economic outlook.”

^[5] National Treasury, “Medium-Term Budget Policy Statement 2025”

^[6] LSEG Workspace, “Economic indicator database,” accessed Nov. 21, 2025.

^[7] Stats SA, “Consumer price index – December 2025,” Jan. 21, 2026.

^[8] South African Reserve Bank (SARB), “Statement of the MPC November 2025,” Nov. 21, 2025. 

^[9] National Treasury, “Medium-Term Budget Policy Statement 2025.”

^[10] SARB, “Statement of the MPC September 2025,” Sept. 18, 2025.

^[11] Daan Steenkamp, “Daan Steenkamp: Team SA approach needed for a low-cost transition to lower inflation target,” BusinessDay, Oct. 3, 2025.

^[12] SANews, “SA exits FATF greylist after successful reform efforts,” Oct. 26, 2025; Nicola Mawson, “South Africa delisted from FATF greylist: What it means for your bank transactions,” IOL, Oct. 25, 2025; Ciaran Ryan, “SA removed from another ‘naughty list’, this time by the EU”, Moneyweb, Jan. 13, 2026.

^[13] National Treasury, “Operation Vulindlela: Phase II progress report,” October 2025.

^[14] South African Government, “National Treasury on Independent Transmission Programme,” June 6, 2025.

^[15] National Treasury, “Operation Vulindlela.”

^[16] National Treasury, “Medium-Term Budget Policy Statement 2025.”

^[17] Reuters, “S&P upgrades South Africa for first time in nearly 20 years as reforms gain traction”, Nov. 15, 2025.

^[18] Suren Naidoo, “South Africa’s ratings upgraded by S&P Global,” Moneyweb, Nov. 15, 2025.

^[19 Antony Sguazzin, “SA wins R15.91bn World Bank loan for ailing cities,” Moneyweb, Nov. 10, 2025.

^[20] EIU, “One-click report: South Africa,” Nov. 7, 2025; Mthobisi Nozulela, “US House approves three-year AGOA extension, but where does this leave South Africa?”, IOL, Jan. 15, 2026.