FNB economists have issued a cautious but necessary downgrade to their GDP growth forecasts in South Africa, reflecting the country’s mounting vulnerabilities — both from within and beyond its borders.
According to their latest outlook, real GDP growth is now expected at 1.6% in 2025, 1.7% in 2026, and 2.0% in 2027. These revisions are subtle on paper, but they carry weighty implications for businesses, investors, and policy watchers who are navigating an increasingly complex environment.
A central driver of the downgrade is weak household demand, which continues to suffer under the weight of rising costs, stagnant income growth, and the compounding effects of fiscal drag. The government’s proposed VAT hike — a half-percentage point increase in 2025 and another in 2026 — will further tighten consumer wallets at a time when confidence is already fragile.
While inflationary pressure has moderated — with 2025 projections revised downward to 3.8% — the benefit is being largely offset by structural challenges. These include persistent policy uncertainty, unreliable energy supply, and slow-moving economic reforms.
The consumer sector, which has been sluggish for the better part of two years, remains central to any hope of recovery. Yet even here, the signals are mixed. While there has been a rebound in vehicle sales and a modest uptick in consumer lending, analysts warn that these gains are fragile. Any optimism must be tempered by the reality of higher taxes and stagnant job creation.
Trade Pressures Escalate
More troubling, perhaps, is the deteriorating global trade outlook. A major development came in early April 2025 when U.S. President Donald Trump reintroduced sweeping tariffs, including a 30% levy on South African exports. This announcement has sparked fresh anxiety around South Africa’s future under AGOA — the African Growth and Opportunity Act — which provides duty-free access to the U.S. market for a range of African exports.
South Africa exported over R156 billion worth of goods to the U.S. in 2024, including precious metals, machinery, and agricultural products. The scale of these exports makes any disruption a serious blow — not just for corporate exporters, but for the broader supply chains and employment pipelines they support.
Exporters now face the dual challenge of declining competitiveness in the U.S. market and the urgent need to diversify trade relationships — a tall order in an already crowded global marketplace.
Investment and Reform Stuck in Neutral
Despite the growing urgency for reform, FNB’s economists remain skeptical about political momentum in the short term. While there is some hope for a rebound in fixed investment — especially after a 3.7% contraction last year — the outlook is weighed down by a trust deficit between government and business, and by uncertainty around South Africa’s regulatory direction.
The much-needed “accelerated reform” scenario appears increasingly remote. Without it, potential gains in energy, infrastructure, and public sector efficiency will remain slow-moving at best.
The challenge for businesses and investors is less about dramatic shocks and more about navigating persistent underperformance. Markets, both domestic and international, are signaling the need for clarity and courage in economic policy. Instead, what they’re getting is hesitation, fragmentation, and delay.
In this environment, strategic patience and scenario planning become essential. Local businesses must continue to hedge against consumer weakness and regulatory volatility. Multinationals and investors should be weighing the risks of trade exposure while staying alert to potential reform signals — however faint they may be.
