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Frederick Mitchell, Chief Economist | Aluma Capital (Pty) Ltd
Frederick Mitchell
June 3, 2025

GDP, Economic Growth and Inflation

South Africa Economic Performance

2025 Q1

South Africa’s economy grew by 0.1% in Q1 of 2025, surpassing expectations of a 1.3% contraction. This modest growth occurred despite international trade tensions, US aid suspension, and tariffs. Positively, the interest rate cut in January, a stronger rand, stable confidence levels, and consistent electricity supply contributed to the gains.

Among ten sectors, Agriculture (up 4.1%), Finance (up 3.9%), and Trade (up 1.9%) showed annual growth. Conversely, Transport (-2.4%), Mining (-4.2%), Manufacturing (-2.5%), and Construction (-3.2%) saw contractions. Quarterly, Agriculture surged by 15.8%, Transport rose by 2.4%, while Trade and Finance grew by 0.5% and 0.2%, respectively.

The 2025 growth forecast is 1.0%, lower than earlier predictions of 1.6% to 1.9%. This does not adequately address the unemployment crisis. However, stable confidence, reduced load-shedding, and a further 25-basis point rate cut in May could enhance economic activity later in the year.

Ongoing challenges necessitate policy clarity and progress on structural reforms. Diplomatic relations with the US have improved following President Ramaphosa’s efforts in Washington, advocating for AGOA continuation. A stable rand, low inflation, and resolved US trade issues could boost economic growth beyond current forecasts

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More Coverage

The Fuel Shock Dilemma: Why the SARB’s Inflation Medicine May Hurt a Fragile Economy

For South African businesses and households already managing a tight financial squeeze, the South African Reserve Bank’s (SARB) recent decision to hike the repo rate to 7.0% felt less like economic medicine and more like a handbrake. While central banks traditionally raise interest rates to cool down an overheating economy, South Africa’s current reality is vastly different. Our recent inflation spike isn’t driven by a wild shopping spree, but by global supply shocks and an imported energy crisis. This begs the crucial question: is the SARB using the wrong tool for the job, and at what cost to our fragile economic growth?

The Core Dilemma: Demand vs. Supply and Interest Rates

The case for holding interest rates is strong, as South Africa’s current inflation is being driven by global supply-side pressures like fuel prices, not excessive local spending. Raising rates now would place additional strain on already struggling consumers and businesses without addressing the real cause of inflation. With the Rand strengthening, oil prices stabilising, and diesel costs expected to decline, natural inflation relief is already emerging. Since inflation remains within the SARB’s target range, increasing borrowing costs could unnecessarily slow economic growth and job creation.

A view on Demand in the Economy: Retail Sales performance – March 2026 Data

Amid a turbulent economic backdrop, South Africa’s retail sales surged by an unexpected 2.6% in March 2026, outpacing forecasts and signalling a fragile yet persistent recovery in the consumer market. While interest rate cuts have bolstered household spending, challenges such as rising inflation, potential interest rate hikes, and geopolitical tensions loom large. Despite these hurdles, sectors like “other retailers” and general dealers have notably contributed to this growth spurt, raising questions about the sustainability of this recovery. With business and consumer confidence indices displaying mixed signals, the future of South Africa’s retail strength hinges on international relations, fuel costs, and policy decisions. Explore the dynamics and implications of these developments in our detailed report.

Consumer Inflation Rate – 2026

In an insightful analysis of South Africa’s economic landscape in April 2026, the report delves into the notable 4.0% year-on-year increase in the Consumer Price Index, accentuated by surging costs in housing, utilities, transport, and financial services. Amid rising inflationary pressures fuelled by global uncertainties, including the Middle East conflict and climbing oil prices, the South African Reserve Bank faces critical decisions on interest rates to balance inflation and economic growth. As households grapple with diminished purchasing power, the precarity of reliance on short-term credit looms large, while international factors such as US-imposed tariffs and potential BRICS trade tensions threaten market stability. The report provides a comprehensive look at the delicate dance South Africa must perform to maintain price stability and safeguard the Rand amidst a challenging global backdrop.

The SARB’s High-Stakes Tightrope: Balancing an Inflation Breach Against a Jobless Crisis

Next week’s SARB decision could define South Africa’s economic trajectory: facing an external oil shock and runaway electricity tariffs that threaten to push April inflation past the central bank’s 4.0% ceiling, policymakers must weigh a technical inflation breach against a staggering surge in unemployment and collapsing investment, a choice between credibility and survival. With joblessness spiking and GDP growth stagnant, aggressive rate hikes would risk choking off the private investment the country urgently needs, while inaction could dent the new inflation-targeting framework. Read the full report for a detailed breakdown of the shocks driving this dilemma, the likely “hold” outcome from the May 28 MPC meeting, and what it means for businesses, households, and markets.