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Frederick Mitchell, Chief Economist | Aluma Capital (Pty) Ltd
Frederick Mitchell
September 10, 2025

South Economic Performance

GDP, Economic Growth and Inflation for 2025Q2

South Africa’s economy experienced a commendable growth rate of 0.8% in the second quarter of 2025, exceeding the anticipated 0.5% expansion. This achievement occurred despite persistent international trade tensions, the cessation of U.S. aid, and impending trade tariffs on South African exports to the U.S., which commenced on August 7. Positively impacting growth were factors such as the interest rate cut in January, a stronger rand, stable confidence levels, and consistent electricity supply.

Of the ten economic sectors, Agriculture reported an impressive annual growth of 13.8%, with Finance growing by 2.2%, Trade by 2.5%, and Transport by 0.1%. Conversely, Electricity, Gas and Water shrank by 2.5%, Manufacturing by 1.2%, and Construction by 3.7%. Quarterly growth figures show Agriculture grew by 2.5%, building on an 18.6% rise in the prior quarter, primarily fueled by a bumper harvest and a 26% increase in exports to the U.S. for the quarter ending June 2025. Mining and Manufacturing increased quarterly by 3.7% and 1.8%, respectively, while Trade and the Finance sector expanded by 1.7% and 0.3%.

Looking ahead, the growth forecast for 2025 remains below 1.0%, largely due to the anticipated increased impact of U.S. trade tariffs from the third quarter. Despite the 0.8% growth in the second quarter, it did not alleviate South Africa’s unemployment issues, as the unemployment rate rose from 32.9% in the first quarter to 33.2% in the second quarter. Job losses are mounting in the third quarter, as U.S. trade tariffs directly affect businesses exporting to the U.S. market. The South African government is actively seeking new international markets for goods affected by U.S. tariffs and is working to address these trade barriers and diplomatic tensions with the U.S.

Addressing ongoing economic and structural challenges will require clear policy direction and progress on structural reforms. Enhancing diplomatic relations with the U.S. and ensuring the continuation of the AGOA agreement are vital. A stable rand, combined with low inflation and resolved U.S. trade and diplomatic issues, could potentially drive economic growth beyond current predictions.

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More Coverage

Gold and Foreign Exchange

September 2025
The South African International Liquidity Position, measured by Net Gold and Foreign Exchange Reserves, showed growth in both USD and Rand terms for September 2025.

Private Sector Credit Extension (PSCE)

August 2025
In August 2025, credit demand grew by 5.9%, slightly below the anticipated market prediction of 6.0% for the month. Since the initiation of interest rate cuts in September 2024, there has been a noticeable acceleration in overall credit growth, with most subcategories showing increases, particularly in July.

Internation Trade and Trade Balance

August 2025
International trade measures South Africa’s demand for foreign goods and services relative to its demand for domestically produced products in the global market.

The Rand’s Journey Against the Dollar in 2025

Unpacking the Undervaluation and Economic Implications
As of October 2025, the South African Rand is trading at R17.15 against the US Dollar, a significant figure in the context of an estimated average exchange rate of R18.20 from January to September 2025. Market analyses leveraging the Purchase Power Parity (PPP) exchange rate – calculated using inflation differentials between South Africa and the US from 2020 to 2025 – indicate that the Rand remains undervalued. This disparity suggests an alignment closer to R14.30 in a conservative estimation and potentially as low as R11.30, revealing a risk premium embedded in the current forex dynamics.

Unlocking South Africa’s Potential

Bold and Radical Shift in Policies are required.
South Africa’s economy recorded modest growth of just 0.8% during the second quarter of 2025, continuing a pattern of sluggish expansion that has persisted over the past decade. With the economy still struggling to break free from its constraints, serious reforms and strategic policy adjustments are essential if South Africa is to achieve sustainable growth rates significantly higher than the current 0.8% average.
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