South Africa is in trouble

Ratings firm Moody’s and the Bureau for Economic Research (BER) have both cut South Africa’s growth forecasts for 2025, following a spate of cuts by international and local finance groups.

This puts to bed any hopes of the country attaining the GDP growth levels needed to tackle perennial and entrenched issues like high unemployment and wealth creation.

It also means the countrry is rapidly moving in the opposite direction of the lofty 3% growth target set by president Cyril Ramaphosa since the formaton of the government of national unity (GNU).

According to Moody’s, South Africa is now expected to only grow at 1.5% in 2025, down 0.2 percent points from its previous forecast of 1.7%.

The agency said the cut was mainly due to a global growth slowdown currently underway, bringing policy uncertainty that’s impacting multiple nations.

The BER, meanwhile, cut its forecast to the same level (1.5%), but it was a deeper cut from a previous estimate of 2.0%.

This matches the median estimate of 27 economists in a Bloomberg survey.

South Africa’s economy will likely expand at a significantly slower pace than previously anticipated because of domestic political instability and US President Donald Trump’s tariff war, the BER said.

Tensions within the GNU — formed after the ANC lost its outright majority in last year’s election — are also a concern, BER Chief Economist Lisette IJssel de Schepper said.

The BER is worried about whether the coalition government will hold and function effectively, she said. A dispute over the national budget since February almost caused it to collapse.

The spending plan has been scrapped twice because of opposition within the coalition over proposals to increase taxes and is now being revised after being suspended by the High Court.

The National Treasury is set to present its third iteration of the budget to lawmakers on May 21.

“In the the second half of last year, we’re getting a bit more excited. We saw some progress on the reform front, and government was starting to add positively to growth momentum,” De Schepper said. “That assumption has now shifted.”

The economy would have fared better this year had it not been for Trump’s 10% universal tariff that is upending global trade.

“Some of the puzzles of growth we’re moving into place, but Trump has obviously swooped some of the puzzle pieces straight off the table,” De Schepper said.

Latest in a long line of cuts

Even with the forecasts cut to 1.5%, these projections are still higher than some other expectations.

Most notably, the International Monetary Fund (IMF) recently cut its forecast for South Africa down to just 1.0% growth.

This was reduced from the 1.5% it projected previously, meaning it already had a more pessimistic view of South Africa’s prospects.

The IMF’s cuts weren’t based on anything in South Africa, specifically, but a general response to the global economic slowdown expected as a result of the US tariff wars.

Investec has also revised its GDP growth projections lower, taking it down to 1.3% in 2025, while Nedbank has done the same, revising its forecasts lower to 1.1% from 1.4% previously.

According to economist Dawie Roodt, most growth forecasts are overly optimistic, noting that South Africa would be lucky to hit the 1% level.

Sitting at the top of the pile of optimism is National Treasury itself which, at the time of the last budget in March, still saw growth of 1.9% in 2025.

The South African Reserve Bank (SARB) has also been slower than most in bringing down its expectations.

At its March meeting, it forecast growth slightly lower at 1.7%—only 0.2 points lower than National Treasury.

It should be noted that both of these projections came before the US launched its tariff war in early April. Pre-April economic conditions are clearly no longer the reality.

Both National Treasury and the SARB should give updated forecasts when the third 2025 budget is tabled on 21 May, and the Reserve Bank Monetary Policy Committee delivers its May statement on the 29th.

(With Bloomberg)