South Africa’s economy is projected to grow at an average of some 1.8% from 2025 to 2027, despite sluggish growth over the past decade.
This is according to Finance Minister Enoch Godongwana who delivered the Budget Speech in Parliament on Wednesday.
“[The] truth is our economy has stagnated for over a decade. In that time, Gross Domestic Product [GDP] growth has averaged less than 2%, far below the level required to meet our expanding list of needs.
“In 2024, the economy grew by only 0.6%. Over the medium term, GDP growth is projected to average 1.8%.
“To meet our goals of redistribution, redress and structural transformation, the economy needs to grow much faster and in an inclusive manner. This is the central objective of the current administration,” Godongwana said.
In the 2025 Budget Review released by the Department of National Treasury, the department set out the reasoning for the projection.
“The medium-term outlook is supported by higher investment and household consumption, aided by a stable inflation outlook, moderate employment gains and improving household balance sheets.
“Continued easing of structural constraints will support the economy by fostering additional investment – including in infrastructure,” the department explained.
Real economic growth is forecast to reach 1.9% while the consolidated budget deficit is expected to contract from 5% of GDP in 2024/24 to some 3.5% in 2027/28.
Real GDP is projected to grow to 1.9% in 2025, down to 1.75 in 2026 and back up to 1.9% in 2027.
“The growth outlook underscores the opportunity to move to a significantly faster economic growth path through sustained progress in raising investment and productivity.
“The outlook will be supported by stable macroeconomic policies, improved efficiency and competitiveness driven by structural reforms, enhanced state capability to deliver services and improved infrastructure investment over the medium term,” the review said.
Government’s plan to bolster growth and employment is anchored by:
- Maintaining macroeconomic stability and reducing volatility to reduce the cost of living and encourage investment.
- Implementing structural reforms to increase efficiency and promote a competitive economy, while addressing constraints to job creation and employment.
- Building state capability by identifying and solving problems in the delivery of core functions, supported by digital transformation.
- Supporting growth-enhancing public infrastructure investment to increase productivity and long-term economic prospects.
“Medium-term growth will be underpinned by household consumption on the back of rising purchasing power, moderate employment recovery and wealth gains. Continued investments in renewable energy and easing structural constraints are expected to support higher investment.
“Key factors for achieving faster economic growth and creating much-needed jobs include greater collaboration with the private sector in energy and transport, rapid implementation of structural reforms, easing of regulatory constraints and increased infrastructure investment,” the department said.
Inflation is expected to rise slightly as the 0.5% value-added tax (VAT) increase takes its toll on food prices.
“Consumer inflation is projected to average 4.3% in 2025 and 4.6% in 2026, picking up slightly as the [VAT] increase pushes up prices.
“The VAT effect is seen mainly in core inflation, which, after averaging 4.3% in 2024, is projected to rise to 4.6% in 2026. Lower global crude oil prices are expected to support muted fuel price inflation.
“Risks to the inflation outlook include upward pressure on food prices from adverse weather patterns and events resulting from climate change. Geopolitical tensions continue to cloud the fuel price outlook,” National Treasury explained.
On the international stage, global growth is expected to stabilise at some 3.3% in 2025 and 2026.
“In the short term, growth in the United States will benefit from robust consumption and investment, while China’s expansion will be supported by fiscal measures to counter investment weakness.
“Growth in Sub-Saharan Africa, the Middle East and Central Asia is expected to increase in 2025 despite the drag from commodity production cuts.
“However, geopolitical tensions – including the threat of sharpening trade disputes – alongside slow productivity gains and trade and supply chain adjustments could limit growth across regions,” National Treasury noted.
Globally, headline inflation is projected to slow to some 4.2% 2025 and 3.5% in 2026.
“[This will be] driven by declining energy prices and cooling labour markets. Advanced economies are expected to return to their inflation targets faster than emerging economies, supported by moderating energy costs and improved labour supply.
“Inflation trends vary in emerging economies, with food inflation persisting in Sub-Saharan Africa, while China is experiencing subdued inflation given weak domestic demand,” the department said. – SAnews.gov.za
