South Africa has significant scope to boost economic performance, after a decline in GDP per capita over the past decade. Educational outcomes are low, and labour productivity is limited. The large gaps in employment rates vis-à-vis the OECD average have further widened since the pandemic. Investment as a share of GDP has fallen from around 29% over the 2000s to 9.5% in recent years, leading to supply bottlenecks and limited potential growth.

Easing regulatory barriers for businesses, ensuring a level-playing field and boosting the efficiency of state-owned enterprises would support job creation, investment and productivity, improve resource allocation and reduce risks to fiscal consolidation. Improving access to, and the quality of, education and training would help reduce skills shortages and boost labour productivity. Ensuring the swift implementation of electricity and climate policies would support energy security and climate goals while reducing air pollution.

GDP is projected to increase by 1.1% in 2025, 1.3% in 2026 and 1.5% in 2027. Declining confidence and fiscal consolidation will weigh on domestic demand, though easing monetary policy and the government’s reform programme will provide some support. Progress in reforms supporting electricity and rail availability is set to reduce supply constraints and support investment. Conversely, the increase in tariffs on imports into the United States will weigh on exports. Inflation will increase over 2026, in part due to higher food prices, before easing in 2027.

Fiscal consolidation in 2026 and 2027 will help limit further increases in the public debt ratio. Reinforcing spending rules and broadening the narrow tax base would further support debt sustainability. The inflation target has been lowered to 3%. Moderate inflationary pressures are expected to allow monetary policy to continue easing over the projection to around neutral rates. Continued progress in reforms to improve the efficiency and governance of state-owned enterprises, increase the supply of electricity, and ease logistics bottlenecks and highly restrictive regulation would support stronger potential growth and job creation.