By: Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano
Structural reform still key to South Africa's growth momentum
South Africa's economic growth in 2025 is estimated to have been at around 1.3%, roughly double the pace recorded in 2024. This outcome was largely underpinned by robust consumer spending, reflecting tailwinds from lower inflation, interest-rate cuts, withdrawals under the two-pot retirement system, and stable income growth. Agricultural activity also strengthened, supported by a record bumper harvest. By contrast, private-sector fixed investment remained subdued, constraining overall GDP growth. The continued easing of structural constraints, particularly improvements in electricity supply and efforts to enhance capacity and operational efficiency in rail and ports, will remain critical to sustaining economic growth over the near- to-medium-term.
Despite heightened global uncertainty and ongoing growth challenges, the domestic economy has recently seen several encouraging developments that should support sentiment and growth momentum into 2026 and beyond. These include South Africa's removal from the Financial Action Task Force grey list and the European Union's list of high-risk third-country jurisdictions, continued fiscal consolidation, the adoption of a lower inflation target, a one-notch sovereign credit rating upgrade by S&P Global Ratings, and ongoing structural reforms under Operation Vulindlela Phase 2.0, fully endorsed by the Government of National Unity (GNU).
The rand-dollar exchange rate performed well in 2025, ending the year at R16.59/$ and is currently trading at around R16.35/$ at the time of writing. The currency has benefitted from a weaker US dollar amid policy uncertainty in the United States and interest- rate cuts. As a commodity-linked currency, the rand has also been supported by favourable terms of trade, underpinned by robust base- and precious-metal prices and lower international oil prices. Fundamentally, lower inflation, continued fiscal consolidation, and an improved growth outlook have further supported the rand. While we expect the currency to remain broadly supported this year, it remains vulnerable to both global and idiosyncratic risks. Globally, key risks stem from US trade policy uncertainty and geopolitical tensions. Domestically, market attention will focus on the upcoming local government elections and their implications for the stability and effectiveness of the GNU.
Overall, we expect growth momentum to persist this year despite global headwinds, supported by interest-rate cuts and the continued easing of structural constraints (see table overleaf). Our latest macroeconomic forecast will be published in the first week of February.
Below is a snapshot of the data releases since our last publication for 2025, highlighting improving sentiment, subdued inflation, and relatively upbeat leading indicators for activity even as actual production remains constrained.
Week ahead
On Tuesday, mining production for November will be released. Mining production (not seasonally adjusted) expanded by 5.8% y/y in October, up from 1.4% in September. Seasonally adjusted, mining output grew by 2.1% in October, slightly down from a 2.6% in September. The largest positive contributions came from iron ore, manganese ore, chromium ore and PGMs. As a result, output for the three months to October is up 2.3%, signalling a positive contribution to 4Q25 GDP growth.
On Wednesday, data on consumer inflation for December will be released. Consumer inflation was recorded at 3.5% y/y in November, down from 3.6% y/y in October. Monthly pressure declined by 0.1% mainly driven by fuel. Core inflation was 0.1% m/m and 3.2% y/y, up from 3.1% previously. Fuel prices declined by 2.2% m/m but were 0.1% higher than at the same time in 2024. Food and non-alcoholic beverages (NAB) inflation recorded 4.4% y/y, up from 3.9% previously.
Also on Wednesday, retail sales data for November will be available. Retail sales increased by 2.9% y/y in October, slightly down from 3.0% y/y in September. On a month-on-month basis, volume sales increased by 0.9% from a 0.1% decline previously. However, the total sales volume over the three months to November increased by 0.1%, compared to a 0.9% increase over the prior three months. The strength in the retail sector, particularly in non-essential categories, reflects improving household purchasing power and balance sheets, as well as a less restrictive monetary policy.
Tables
