OECD Economic Outlook, Volume 2025 Issue 2

South Africa

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.

Consumer and business confidence has fallen

Business, and consumer confidence fell in the third quarter, continuing their downward trend over 2025, with consumer confidence having fallen more markedly. The labour market improved in the third quarter of 2025, with the unemployment rate decreasing to 32.3%. Headline inflation has increased in recent months, reaching 3.6% in October, alongside accelerating food prices. Core inflation has increased more moderately, reaching 3.1% in October.

South Africa

1. A higher indicator value reflects more regulatory barriers. G20EME is the unweighted average of Brazil, China, Indonesia, Mexico, South Africa and Türkiye. The indicator for South Africa reflects the laws and regulations in force on 1 January 2023. For some countries, the indicator reflects those in force on 1 January 2024.

Source: OECD Economic Outlook 118 database; and OECD-WBG Product Market Regulation database.

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South Africa: Demand, output and prices

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The United States has increased tariffs on imports from South Africa, though the exclusion of certain critical minerals and bullion lowers the effective rate to below 15%. South Africa sends around 7.6% of its exports to the United States, limiting the impact on GDP. Spreads between South African and US long-term bonds have declined by around 170 basis points between their peak in April and October, suggesting that the perceived risk of investing in South Africa has fallen. The upgrade to South Africa’s credit rating from S&P Global Ratings in November will also likely lower borrowing costs. The exchange rate against the US dollar has continued to appreciate since April, lowering the price of imported goods.

Fiscal policy is consolidating while easing monetary policy will support activity

The primary fiscal balance excluding one-off items is projected to improve by 0.1% of GDP in 2025, 0.6% of GDP in 2026 and 0.3% of GDP in 2027. Revenue measures include no inflationary adjustment to income-tax brackets, adding 0.2% of GDP to revenues in each of the 2025/26‑2027/28 fiscal years, and additional tax measures to be announced in the 2026 Budget, representing 0.2% of GDP in each of the 2026/27 and 2027/28 fiscal years. Conversely, expenditure as a share of GDP is expected to rise in the 2025/26 fiscal year, before falling. Exceptional debt relief for the state electricity operator, Eskom, of 1% of GDP will conclude in the 2025/26 fiscal year. Transfers from the central bank to government accounts (via the Gold and Financial Contingency Reserve Account), equivalent to 0.3% of GDP in the 2025/26 fiscal year and 0.6% in the 2026/27 fiscal year, will continue to contribute to debt reduction. The central bank lowered policy rates by 150 basis points between September 2024 and November as inflation eased. The inflation target has been lowered to 3%, with a tolerance band of 1 percentage point. Subdued inflationary pressures are expected to allow for a further 50 basis point reduction in rates by the end of 2026.

Activity will increase moderately

The economy is projected to grow by 1.1% in 2025, 1.3% in 2026 and 1.5% in 2027. Monetary policy easing, progress in reforms supporting electricity availability and reducing logistics bottlenecks are set to support investment and consumption. Exports will increase only gradually, limited by the increase in US tariffs. Fiscal consolidation will result in limited increases in government expenditure from 2026, although the increase in spending in 2025 will provide some support to the level of spending that year. As economic growth remains broadly around potential, the unemployment rate will decrease only slightly. Inflation will rise to 3.6% in 2026, in part boosted by elevated food prices, before easing to 3.2% in 2027. While reforms will help ease supply bottlenecks and boost public investment, there is a risk that businesses increase investment more slowly than assumed.

Swifter reforms and less restrictive regulation would support growth

High government debt-servicing costs are limiting the fiscal space available for social and growth‑enhancing policies. Strengthening the fiscal framework through stricter spending controls and reinforced fiscal rules anchored to a stable debt target would support fiscal consolidation. Continuing to restructure state-owned enterprises (SOEs) will reduce the risk of further fiscal transfers. Restructuring includes ensuring financial sustainability, enhancing management and establishing a holding company with international governance standards for large SOEs. Reforming highly restrictive regulations could play a key role in boosting growth and creating jobs. Easing burdensome licensing, permits and complex procurement rules would support firm entry and expansion, particularly for smaller firms who have less capacity to deal with complexity. Easing barriers to firm restructuring would boost the efficiency of the insolvency regime and support the efficient reallocation of capital and labour.