By: Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano
South Africa's economy shows resilience despite headwinds
The latest release of 3Q25 GDP data reflected continued economic momentum, with seasonally-adjusted quarterly growth of 0.5%, moderating from 0.9% in 2Q25. This marked a fourth consecutive quarter of expansion, supported by growth in nine out of ten industries. On an annual basis, real GDP (non-seasonally adjusted) rose by a solid 2.1% compared with the corresponding quarter last year, marking eight consecutive quarters of annual growth and reinforcing evidence of an emerging upturn in South Africa's economy, despite persistent global headwinds. Excluding the notoriously volatile agriculture, forestry and fishing sector, GDP was 1.1% higher than a year ago and 2.1% above the same quarter in 2023, signalling a firmer underlying recovery. We have accordingly marked our macroeconomic projections to market, as discussed overleaf.
Consumers doing the heavy lifting
Year-to-date (to 3Q25) real GDP has risen by 1.2%, underpinned by the robust recovery in household consumption amid real income gains from low and stable inflation, pent-up demand, and savings facilitated by interest rate cuts. Real household spending has been robust in categories such as miscellaneous goods and services (up 8.6% year-to-date), clothing and footwear (up 6.2%), restaurants and hotels (up 4.0%), recreation and culture (up 3.5%), and health (up 3.0%).
Expenditure on food and non-alcoholic beverages increased by 2.4%, communication by 2.3%, transport equipment by 2.1%, furniture and household equipment by 2.1%, and education by 1.6%. Spending on alcoholic beverages, tobacco and narcotics rose modestly by 0.6%, while utilities expenditure was broadly flat at around 0.1% year-to-date.
We now expect overall household consumption to rise by 3.1% this year, revised up from 2.4%, reflecting the strength observed over the first nine months of the year.
Fixed investment is still lagging
In contrast, total gross fixed capital formation (GFCF) increased by 1.6% q/q in 3Q25, rebounding from a 1.6% contraction in 2Q25, but annual trends continue to show weakness. GFCF fell by 1.9% compared with the same quarter last year, and by 4.7% relative to 3Q23. Over the first nine months of this year, GFCF declined by 2.7% compared with the same period in 2024, largely due to a 3.6% fall in private sector investment amid subdued confidence, weak domestic and external demand, and ongoing global trade uncertainty.
While structural reforms are advancing and constraints in the energy and logistics network industries are gradually easing, further reforms under Operation Vulindlela 2.0 aim to address additional bottlenecks and catalyse greater private sector participation in public infrastructure delivery. Combined with continued commitment to fiscal consolidation, these efforts should ultimately bolster business confidence and stimulate private investment.
Public-sector investment (government plus public corporations) grew by 5.4% q/q in 3Q25, partially reversing an 11.6% decline in 2Q25. However, it remained 3.0% lower than a year ago and 2.8% below the same quarter in 2023. While the quarterly rebound is encouraging, it is too early to determine whether it will be sustained. Nonetheless, the government's Budget emphasis on public infrastructure investment signals a more supportive medium-term outlook.
Overall, we project a 2.3% decline in total GFCF this year, followed by a modest recovery of 1.8% in 2026, 2.4% in 2027, and 2.2% in 2028. This implies a protracted recovery to 2019 levels. By 2028, total GFCF is still expected to remain around 7.3% below its 2019 level, assuming no upside surprises.
Inflation and monetary policy remain cautiously supportive
Inflation has largely remained contained, with outcomes persistently undershooting expectations. In October, headline inflation edged up to 3.6% y/y from 3.4% in September, as the earlier deflationary boost from fuel dissipated. We expect headline inflation to peak at 3.7% in December, within the new inflation target tolerance band. On average, inflation is forecast at 3.2% this year, rising to 3.4% in 2026 and 2027, before easing towards 3% in 2028.
The South African Reserve Bank (SARB) has delivered 150-basis points (bps) of interest rate cuts to date, a substantial easing that has supported household spending, including on productive assets such as new vehicles. We anticipate further, gradual rate cuts from next year, with the repo rate expected to decline to around 6.0% by the end of 2028. Although real rates remain restrictive, the SARB may see this as appropriate in anchoring inflation expectations around the new 3.0% target over the next two years.
Overall economic growth is rising modestly
Despite a challenging global backdrop, particularly the sweeping reciprocal trade tariffs implemented by the United States (US) Administration, South Africa's economy has demonstrated resilience. Structural reforms to ease infrastructure constraints and lower the cost of doing business are progressing under Operation Vulindlela 2.0; government remains committed to fiscal consolidation; S&P Global recently upgraded South Africa's sovereign rating by one notch; and the country has been formally removed from the FATF grey list following extensive institutional reforms. Together, these developments signal an emerging growth recovery path.
We expect real GDP growth to rise from 0.5% in 2024 to 1.3% this year, 1.4% in 2026, 1.5% in 2027, and 1.7% in 2028. Household consumption remains the primary growth engine, while fixed investment is still subdued but expected to strengthen gradually from next year onwards. The external environment remains a key risk, particularly given elevated US tariffs, but export performance in other markets, supported by firmer commodity prices, should help sustain the trade surplus.
Week in review
The Manufacturing PMI fell by 1.6 points to 49.2 points in October, continuing into contractionary territory. The outcome was driven by declines in four of the five headline PMI subcomponents, with employment being the only area showing slight improvement. Business activity saw a further drop, from 49.4 points in October to 36.7 in November. Even though the index has shown volatility, its sustained weakness is evident in the continued lack of momentum in official manufacturing data. Although a major drag on the headline PMI, the sharp drop in the supplier deliveries index could signal positive news if shorter delivery times reflect easing logistical constraints. The new sales orders index fell from 48.9 points in October to 35.6 in November. Export sales remained subdued, but the renewed decline in demand was primarily driven by the domestic economy. The employment index increased from 45.1 points in October to 46.2 in November. However, demand continues to be muted as activity remains volatile. More positively, the index tracking expected business conditions edged up to 50.8, signalling anticipated improvement in business conditions over the next six months.
New vehicle sales volumes increased by 12.5% y/y in November, reaching 54 896 units, but down from 55 973 units in October. The annual increase was driven by new commercial vehicle sales which expanded by 16.6% to 15 738 units. New passenger car sales increased by 11.7% to 39 158 units. Within the commercial segment, light vehicles rose by 20.5%, heavy vehicles increased by 5.8% and extra heavy vehicles rebounded to 0.2%, up from -3.9% in October. By contrast, bus sales continue to decline at 6.8%, while medium vehicles saw a decline of 0.6%. Sustained annual sales growth reflects the combined effects of an ongoing replacement cycle, low and stable inflation, interest rate cuts, as well as resilient demand in the entry-level and affordable brands.
The RMB/BER Confidence Index (BCI) rose to 44 index points in 4Q25, up from 39 previously. While the composite index showed a positive shift, this again masked pronounced sector-level movements. Retail and manufacturing sectors saw the largest improvements in confidence, while building contractors experienced a fall. New vehicle dealers experienced further gains supported by interest rate cuts and resilient demand in budget-friendly segments. The survey period followed the South African Reserve Bank's rate cut and its shift toward a lower inflation target, which provided some relief to businesses. However, the lingering effects of earlier export tariffs and subdued global growth continued to weigh on the outlook, particularly for sectors exposed to international markets.
The current account deficit narrowed to R57.0 billion in 3Q25, from a downwardly revised deficit of R72.2 billion in 2Q25. As a percentage of GDP, the current account was -0.7% versus -1.0% in the previous quarter. This reflected a narrower deficit on the services, income and current transfers account, which decreased from R259.4 billion to R235.3 billion, mainly due to a smaller shortfall on the primary income account. The trade surplus on goods and services narrowed, from R187.2 billion in 2Q25 to R178.3 billion in 3Q25, as total export volumes fell while import gains were driven by the price effect. In line with this, SA's terms of trade deteriorated as total import prices outpaced those of exports. The trade surplus on goods and services was 1.4% of GDP versus 1.7% previously.
Electricity production declined by 5.2% y/y in October, following a 5.7% decline in September. On a seasonally adjusted basis, generation declined by 0.4% m/m in October, after a 1.3% decline in September. Looking at the broader trend, electricity generation declined by 2.5% in the three months ending October 2025, compared with the previous three-month period.
South Africa's Foreign Exchange Reserve rose to $72.07 billion in November, up from $71.55 billion in October. Gold reserves and Special Drawing Rights (SDR) holdings were the main drivers of the increase. In contrast, foreign currency reserves decreased, and the central bank's unsettled or swap transactions dropped to $0.55 billion in November from $0.6 billion in the previous period.
Week ahead
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