GDP growth expected to surprise to the upside in 2025

Suddenly things are looking a lot brighter for South Africa – it celebrated 300 days without load shedding on Tuesday, and Transnet is ushering in a new era of competition on its rail network.

A report out this week by Capital Economics says GDP growth is likely to exceed 2.3% this year, underpinned by the mining and retail sectors. This is well above National Treasury’s 1.7% forecast for 2025, and the International Monetary Fund’s 1.5% projection for the year. Others have put the expected growth at 1.5-2% for 2025.

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What’s sparked this upward revision in GDP growth are robust retail sales, up 7.7% for the year to November last year, and mining revenues, which surged 4% in the three months to November 2024 compared to the previous three months.

Read: SA’s retail sales surprise, surging to two-year high

Manufacturing was the weak link in this otherwise rosy picture, contracting 0.2% over the three months to November.

The turnaround at Eskom and improved performance at Transnet – two critical brakes on growth for the last decade – have changed the economic outlook for the coming year.

A time of easing?

“We think the SA Reserve Bank (Sarb) has scope to continue easing monetary policy to support growth. The lower-than-expected inflation reading for December supports our view that the Sarb will lower its repo rate by 150 basis points to 6.25% by year-end,” says Capital Economics.

Lower interest rates of this magnitude could put more than R20 billion a year into the pockets of home owners, with much of that going to the retail sector.

Finance Minister Enoch Godongwana projected a business-friendly, free market theme to attendees at the World Economic Forum in Davos, Switzerland, this week.

He told Investec Focus: “While our debt-to-GDP ratio is worryingly above 60% – the maximum sustainable debt ratio for an emerging market economy – it is positive to see the strong focus on working down public debt, while growth initiatives strengthen and infrastructure constraints are being eroded, with business confidence improving.”

Read: WEF forecasts rapid growth in AI, big data and cybersecurity jobs

A key concern for investors is the state of public debt, now more than 72% of GDP. In 2008 it was just 27.8%. Godongwana wants to stabilise this at 75.5% of GDP in the 2025/6 fiscal year before managing it down below 70% by 2030.

Percentage GDP growth year on year

“Alongside easing electricity and logistics constraints and a rebound in agriculture, we expect GDP growth to hit an above-consensus 2.3% this year. But continued fiscal discipline and wider structural challenges means that sustaining growth above 2% will be difficult,” says Capital Economics.

Poised for stronger growth

Investec chief economist Annabel Bishop adds: “While our debt-to-GDP ratio is worryingly above 60% – the maximum sustainable debt ratio for an emerging market economy – it is positive to see the strong focus on working down public debt, while growth initiatives strengthen and infrastructure constraints are being eroded, with business confidence improving.”

South Africa is poised for substantially stronger economic growth, says Bishop, as structural impediments are eroded. This is reflected in improved investor interest in SA’s financial markets.

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There remain a few worries on the horizon: a weak rand raises the costs of imports, notably fuel, but also makes SA exports competitive abroad; government will have to stick to its promise of fiscal discipline or potentially derail this happy outlook; manufacturing remains weak, and the closure of long steel manufacturing plants at ArcelorMittal won’t help.

On the global front, geopolitical tensions in Ukraine and the Middle East will need to be tamped down by new US President Donald Trump’s administration to foreclose on any nasty surprises to the global economic outlook.

Read: Trump promises ‘common sense’ ideas in inaugural address

The improved electricity situation in SA is a promising sign that SA’s economic conditions could indeed improve, says Coronation fund manager Charles de Kock, in a note to investors.

“However, progress is also needed across other infrastructure areas to sustain growth. From a valuation perspective, the domestic market rallied [in 2024] from very cheap levels to a more normal but not yet expensive level. We continue to favour the higher quality companies with stronger management teams who we believe will manage the bumpy ride of the local economy the best.”

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