2025q2
Regional eXplorer (ReX) update – 2nd quarter of 2025
S&P Global is glad to announce the second quarter update for 2025 of Regional eXplorer (ReX) – the South African knowledge base of municipal-level insight. Each quarter, data from a vast number of sources are incorporated into the ReX database to provide users with the most up-to-date statistics.
In this newsletter:
1. S&P Global Market Intelligence analysts have adjusted South Africa’s – real GDP growth forecast to 1.1% for 2025 and 1.7% for 2026
2. Medium-and long-term outlook
S&P Global Market Intelligence analysts have adjusted South Africa’s – real GDP growth forecast to 1.1% for 2025 and 1.7% for 2026
Market Intelligence analysts have revised South Africa’s real GDP growth estimate for 2025 down to 1.1%, from 1.3% previously. A lower-than-expected gain of 0.1% quarter over quarter in real GDP during the first quarter underlined the revision of overall GDP growth. Furthermore, increased global uncertainty, driven by rising US trade protectionism and instability in the Middle East, is anticipated to impede global growth, heighten concerns regarding international trade, and result in delays in both local and global investment decisions. Economic activity is anticipated to remain sluggish in the second quarter of 2025, heightening the risk that GDP growth may finish the year below S&P Global Market Intelligence’s original forecast of 1.3% for 2025.
A sharp rebound inbagricultural production, adding 0.4 percentage points to the overall GDP changes, was primarily responsible for the resilience in economic activity. Non-agricultural GDP contracted by 0.3% quarter over quarter during the first quarter of 2025. Other sectors that made a positive contribution to the quarterly change in overall GDP during the first quarter included the transport, storage and communication sector followed by the trade, catering and accommodation industry — boosted by a rise in retail trade, motor trade, accommodation and food and beverages — and the finance, real estate and business services industry, where insurance and pension funding showed auxiliary activities.
Households are expected to witness a fall in nominal disposable income levels due to increased fuel levies and a higher tax burden. The 2025–26 national budget made no inflationary adjustment to tax brackets and rebates or medical tax credits. The downward pressure on spending from higher taxes may be somewhat alleviated by lower inflation and the introduction of the new two-pot retirement system, allowing households to access a portion of their pension savings in 2025. Moreover, household spending continues to support economic activity in the South African economy, expanding by 0.4% quarter over quarter during the first quarter of 2025. All sub-components of consumer spending, namely non-durable, semi-durable and durable spending, increase during the first quarter.
The two-pot retirement system is likely to – add 0.3 percentage point to the 2025 real GDP growth rate under the assumption of a 50 billion rand withdrawal of the retirement saving pool in the fourth quarter of 2024, followed by a 20 billion rand withdrawal spread evenly over the four quarters of the year in 2025, used primarily for consumption instead of debt reduction, research by the South African Reserve Bank (SARB) shows.
Real fixed investment spending is unlikely to meet previous estimates and is instead expected to fall by 0.8% in 2025. Sticking high interest rates, combined with mounting business and investor uncertainty amid rising global and domestic volatility, are likely to delay private sector investment in 2025. Residential investment, accounting for 16.5% of total real private-sector investment, remains lackl uster during the first four months of 2025. Pressure on household income due to higher taxes is now expected to delay residential fixed investment closer to the end of 2025. Policy reforms in South Africa’s energy, water, ports and railway sectors will continue nonetheless, with a strong focus on public-private partnerships underscoring future investment in public sector infrastructure.
Market Intelligence analysts have lowered South Africa’s 2025 real export growth forecast to 1.3%. The new 25% tariff on US vehicle exports will hurt South African companies that previously had duty-free access under the African Growth and Opportunity Act. While mining exports, primarily platinum group metals, are exempt from the 10% tariff, agricultural exports will be affected. South Africa sends only 5%-6% of its exports to the US, but slower global growth is expected to hurt the overall export outlook. Consequently, the current-account deficit is projected to widen to 1.1% of GDP in 2025, up from 0.7% in 2024.
Medium-and long-term outlook
Potential for significant monetary easing may be limited by increasing domestic and global uncertainty. Although South Africa’s headline inflation rate has fallen below the midpoint of the SARB’s target range of 3%-6%, our estimates indicate that inflation may reach approximately 4.5% by the end of the year. This inflation trajectory will still allow the SARB to lower its policy rate by a further 50 basis points in 2025. Global and local uncertainty pose the biggest risk to the interest rate outlook.
Rand exchange rate volatility is expected to increase in 2025. Maintaining a wide US interest rate differential combined with a modest widening in the current-account deficit is likely to leave the rand at around 18.00-18.40 rand to the US dollar in 2025, broadly unchanged from end-2024 levels. Exchange rate volatility will increase nonetheless as shown by the sharp depreciation in the rand due to domestic political uncertainty during April.
South Africa maintains fiscal consolidation in the revised 2025-26 national budget. The revised 2025–26 national budget includes adjustments to revenue and expenditure measures aimed at maintaining medium-term public-sector debt consolidation. The previously proposed 1% increase in value-added tax (VAT) and zero-rated VAT items for financial years 2025–26 and 2026–27 has been reversed. Additional revenue from a fuel levy increase, combined with no provisions for personal income tax bracket creep or inflation adjustments to medical aid credits, will partly offset higher spending during 2025–26. Overall, the budget deficit as a percentage of GDP is expected to end financial year 2025–26 at 4.8% of GDP, falling to an estimated 3.4% of GDP by financial year 2027–28. The public-sector debt-to-GDP ratio should peak in financial year 2025–26 at 77.4%, up from 76.2% previously. Debt-servicing costs amount to 5.4% of GDP over the medium term, up from 4.2% of GDP in 2021–22. The official inflation target range of 3%-6% remains unchanged.
Policy reforms are likely to boost South Africa’s real potential growth rate to 2.3%-2.5% over the long term. The formation of the Government of National Unity (GNU) after the May 2024 elections is set to advance policy reforms in South Africa’s energy, ports and railway sectors, while addressing critical skills shortages through visa reforms. Increased private-sector involvement in renewable energy, port operations and railway access is expected to enhance gross capital formation via infrastructure development, ultimately bolstering South Africa’s long-term growth potential. Additionally, South Africa stands out in Sub-Saharan Africa for its favorable demographic dividend, with a larger working-age population compared to non-working individuals bolstering potential growth over the long term. Businesses are furthermore likely to expand operations beyond infrastructure development to leverage preferential access under the African Continental Free Trade Agreement (AfCFTA), investing in critical mineral deposits, the tourism sector, and advanced financial and technology services.
Prudent fiscal and monetary policies likely to ensure economic stability. Economic stability will be ensured through the implementation of sound monetary and fiscal policies. S&P Global Market Intelligence anticipates that the South African Reserve Bank (SARB) will maintain its independence, focusing on currency stability and keeping inflation within the 3%-6% target range while ensuring the health of the financial sector. Over the long term, the SARB is expected to lower its unofficial inflation target from 4.5% to 3.0% to align inflation with that of South Africa’s major trading partners. Fiscal transparency is projected under the Medium-Term Expenditure Framework (MTEF), with South Africa ranked among the top three countries globally for transparency by the International Budget Partnership. A binding fiscal anchor, such as a stabilizing primary budget surplus, is likely to emerge in the short to medium term to promote fiscal consolidation and reduce the risk of fiscal imbalances and public-sector debt instability.
Low savings will leave South Africa reliant on foreign direct investment (FDI) to achieve growth objectives. The disparity between savings and investment will result in South Africa depending on FDI, necessitating the maintenance of regional competitiveness to attract capital into the country. Investors can take confidence in South Africa’s favorable business environment. The country has a highly developed and well-regulated financial system, including the Johannesburg Stock Exchange (JSE). While infrastructure bottlenecks have emerged in recent years, South Africa’s road, rail and port facilities remain the most advanced in the region. The judicial system is robust, and the diverse skills pool, along with top-ranking tertiary institutions, positions South Africa to capitalize on the anticipated regional economic growth in the coming years.
Political developments continue to pose the biggest risk to South Africa’s long-term prospects. Delays in implementing essential policies to address infrastructural bottlenecks pose a risk to our long-term outlook. While markets welcomed the formation of the GNU in 2024, the potential for a coalition collapse within five years remains a concern. Additionally, policy paralysis may occur due to significant differences in political ideologies regarding growth and ministerial objectives. South Africa is one of the most unequal societies in the world, leaving the risk for social unrest and pressure for social support programs high. State inefficiency, public-sector brain drains, the collapse of service delivery on municipality level, high crime statistics and a vulnerability to adverse weather conditions continue to pose a risk to South Africa’s long-term prospects.
Risk to the forecast
The GNU established after the May 2024 elections unravels owing to policy diversity and lack of consensus among political parties. President Cyril Ramaphosa resigns and policy and political uncertainty deter domestic and international sentiment. Policy reforms in energy, transport, mining and labor stall.
Private-sector portfolio and fixed investment are delayed owing to mounting concerns about property rights, social unrest and electricity supply. Ongoing adverse weather conditions pose a threat to low food prices, and hence risks raising inflation and lowering purchasing power — with particularly dismal consequences for low-income households.
South African loses preferential trade access to the US under the African Growth and Opportunity Act owing to increasingly strained US-South Africa political relationship. The US imposes financial sanctions on South Africa. The government delays government spending rationalization programs, which include the public-sector wage bill and state-owned enterprise (SOE) inefficiencies. Public-sector debt levels escalate above current expectations, triggering further sovereign credit risk downgrades by international rating agencies, being crowded out of public investment and deterring long-term growth prospects.
An increase in US protectionism, through the adoption of higher tariffs, faster deportation of illegal immigrants combined with the extension of tax cuts, could leave US inflation and interest rates higher for longer and the US dollar stronger than initially expected. Additionally, the Israel-Iran conflict results in a sharp upward spike in global oil prices.
However, there are upside risks to the forecast. Under the new leadership of the GNU, the South African government may launch a series of reforms and policy actions to address the weaknesses in the education system, loss in international competitiveness, the mining charter, and the financial viability and leadership of SOEs. Furthermore, International commodity prices move above the baseline outlook; this improves the growth and exchange rate outlook in the South African economy.
Main data releases incorporated in the update
ReX has been updated with the latest data available from StatsSA, SARB QB, SARS and many more that allowed us to model. Over the last quarter the following notable updates have been incorporated:
The Fiscal module has been updated to now include the 2024 data however, the pre-mSCOA have been removed for necessary maintenance/revision to be done to the data. If you require the pre-mSCOA data, please contact Evan Burger (evan.burger@spglobal.com).
The 2025 Q1 crime data available from SAPS has been incorporated into the model. This allows for the annual crime data for the FY 2024/2025 to be updated as well as the new quarterly data for the given quarter.
Finally, the Household infrastructure module now includes the 2024 annual data. This is due to the having the addition of GHS 2024 within the model. Along with this the 2025 q1 quartely labour force survey (QLFS) and the quarterly GDP for 2025 Q1 have been included into the model with the update.
What to expect?
The 2025 Q3 release is planned for early October with updates the Tourism Module to include data for the 2024 time period. With the anticipated release of the MYPE 2025, the Demographic module will also see an update to the ReX population variables. We are also expecting the release of Poverty Report which is based on the IES 2020 results. This will be incorporated within model and result in updates to our poverty-based variables.
Enjoy the update!
The S&P Global ReX team