Economic Outlook for South Africa in 2025

These challenges are interconnected and significantly influence overall economic growth. Key issues include:

• Uncertain Policy Direction: The proposed carbon credits bill, a 3% tax on companies’ net profits for a Black Economic Empowerment (BEE) Small, Medium, and Micro Enterprises (SMME) fund, and the controversial National Health Insurance (NHI) are creating uncertainty.
• Expropriation Without Compensation (EWC): Recently signed into law, this policy raises concerns about property rights and investment security, leading to fears of job losses and disinvestment.
• Infrastructure Challenges: The country faces ongoing issues with water and sanitation, as well as logistical complications affecting ports and rail, which hinder international trade.

On a positive note, the stability in electricity supply has improved, and interest rates were lowered by 50 basis points in late 2024. Furthermore, government changes allowing access to pension funds through the two-pot system have enabled individuals to utilise their savings, providing necessary relief for households pressured by rising costs. Many have used these funds to manage debts and sustain their spending, contributing to better consumer demand.

In November 2024, retail sales rose by 7.7%, significantly outpacing the expected growth of 5.5%. Analysts view this boost as an encouraging sign of strengthening consumer confidence, especially as spending flows into the holiday season. Additional interest rate cuts could further bolster this demand.

On the international front, January 20 marked the inauguration of the 47th President of the United States, making the initial 100 days critical for understanding the implications of a second Trump presidency, particularly for South Africa. Trump’s early executive orders, which included withdrawing from the World Health Organization and pausing participation in the Paris Climate Accords, signal a shift toward business-friendly policies. His plans for increased funding in artificial intelligence and a focus on becoming the “crypto currency capital” of the world may influence global markets, including South Africa.

While South African markets reacted to these international developments—with the rand initially depreciating against the dollar but later stabilising—domestic issues remain paramount. The EWC act’s recent enactment raises concerns among coalition partners in the Government of National Unity (GNU), with differing opinions potentially leading to fractures in this alliance. This split could prompt disinvestment from South Africa and negatively impact the country’s standing in global markets.

The ongoing disagreements over the EWC act, alongside disputes related to the NHI and other legislative measures, pose risks to the trust and cooperation within the GNU. A decline in this goodwill could lead to re-evaluation of South Africa’s participation in crucial agreements like AGOA (African Growth and Opportunity Act), especially under the scrutiny of the new U.S. administration.

Given these multifaceted challenges and the current positive market sentiment from late 2024, economic forecasts for South Africa in 2025 must be approached with caution. Key variables to monitor include economic growth, interest rates, inflation, exchange rates, oil prices, and gold prices. Projections may evolve with new data, influencing the economic landscape as it develops throughout the year.

In summary, while 2025 presents significant challenges for South Africa, there are also opportunities for growth and revitalisation. By navigating policy issues and fostering stability, the country can position itself for a more prosperous future.

Aluma’s forecast for main economic variables in South Africa: