Slow but steady from the economy

South Africa’s economy squeezed out a fifth consecutive quarter of expansion in the final three months of 2025, though underlying data reveal a multispeed recovery heavily reliant on the financial sector and constrained by longer-term investment hurdles.

According to data released by Stats SA, GDP grew by 0.4% in the fourth quarter, bringing real full-year production growth for 2025 to 1.1%. While this is a distinct improvement from the 0.5% recorded in 2024, the figures paint a picture of an economy still fighting to gain robust momentum.

While the final quarter’s 0.4% expansion slightly beat broader market expectations, analysts cautioned against viewing the full-year performance through an overly optimistic lens.

Lisette IJssel de Schepper and Shannon Bold of the Bureau for Economic Research (BER) note that the consecutive quarters of growth indicate that the gradual economic recovery remains intact. However, they point out that the 1.1% annual figure was somewhat softer than expected. This was largely due to downward revisions to earlier quarters, particularly a notable adjustment to the third quarter’s growth.

Citi economist Gina Schoeman echoes this sentiment. She notes that while the final quarter landed exactly in line with Citi’s 0.4% forecast, the year-on-year growth metric proved more challenging, coming in slightly below its expectations due to the difficulty of maintaining momentum from high baseline effects.

The fourth-quarter growth was far from broad-based, showcasing a stark divergence between a buoyant tertiary sector and struggling traditional industries.

The finance, real estate and business services industry made up the primary engine, expanding by 1.4% and effectively carrying the broader economy. In contrast, the manufacturing sector shrank by 0.6% during the same period.

Primary sectors, which had previously bolstered the economy, were also a drag on fourth-quarter momentum. Schoeman says this loss of momentum in agriculture and mining was a logical outcome. Because these sectors were coming off such a robust period of growth, it was practically impossible to maintain that steep upward trajectory.

Sustainable long-term economic growth relies heavily on gross fixed capital formation (GFCF) — a measure of investment in infrastructure and physical assets. While GFCF recorded a positive fourth quarter, increasing by 1.3%, the broader annual picture remains concerning; fixed capital formation contracted by 2.2% for the full year of 2025.

Sustained improvements in rail volumes, port efficiency and private investment will be needed before we can confidently say the tide has turned

—  Sanisha Packirisamy

Sanisha Packirisamy, group economist at Momentum Group, highlights this long-term vulnerability. Rather than accelerating, fixed capital formation appears to be merely stabilising, she says, pointing out that private sector investment in energy and mining is holding up much better than public sector infrastructure spending.

The broader logistics network remains a significant headwind, though gradual structural shifts are under way. Packirisamy says that early steps to reform the freight logistics system — including greater private sector participation in rail and ports — are beginning to lift sentiment.

“However, implementation remains gradual, and sustained improvements in rail volumes, port efficiency and private investment will be needed before we can confidently say the tide has turned,” she warns.

IJssel de Schepper and Bold point out that the external sector failed to provide a lift to the economy at year-end. “Disappointingly, exports declined once more in the fourth quarter, following a marginal uptick in the third quarter.” This contraction was not uniform across the board; while the vital vehicle and transport sector struggled and certain food categories underperformed, the mining sector’s heavyweights — precious and base metals — delivered robust export numbers. Conversely, South Africa’s appetite for foreign goods continued. Imports rose for a second consecutive quarter, though the pace of this growth had cooled, slowing from 2.2% in the third quarter to 0.5% in the fourth.

Despite the modest real GDP figures, the data contains a significant victory for the National Treasury in the form of nominal growth. This is the measure of economic output before adjusting for inflation, and it serves as a key driver of tax collection.

Schoeman highlights this as a spectacularly positive development for the government’s balance sheet. Nominal growth averaged 5.2% in the second half of 2025, double the 2.6% average seen in the first half of the year.

According to Schoeman, if this momentum continues, the Treasury’s revenue estimates will remain comfortably on track, particularly because this revenue is being driven by genuine economic expansion rather than just inflationary pressure.

Looking ahead, the momentum generated by structural reforms is balanced precariously against global geopolitical risks, which will dictate the Reserve Bank’s movements on interest rates.

Schoeman cautions that the ongoing conflict in the Middle East poses a distinct threat to local fuel prices and inflation. Consequently, she does not expect the Bank to cut interest rates at its next meeting, as oil prices and currency fluctuations remain too uncertain. Rate relief for consumers, she adds, is more likely to begin in May if global markets normalise.

Despite these global headwinds, analysts maintain a stance of cautious optimism for 2026. The BER is keeping its annual growth forecast for the year at 1.8%.

“For now, we are comfortable with this view,” IJssel de Schepper and Bold say, “as downside risks from the global economy are somewhat offset by slow and steady momentum on reform and an uptick in business confidence.”