Big trouble for South Africa this week

Economists expect a poor GDP reading to be published this week, continuing the trend of stagnating economic growth in South Africa.

High-frequency data has already pointed to a stagnant first quarter of the year, which reflects January to March 2025, before global tensions erupted due to the United States’ tariff war.

Analysts expect a reading of around 0% real growth for Q1, down from a paltry 0.6% increase in the last quarter of 2024. A small quarterly contraction may also be in the mix.

Nedbank said that agriculture will probably be the ‘star performer’ for the quarter, while activity in mining, manufacturing, electricity, construction and trade is expected to be bleak.

These sectors would have been held back by a difficult operating environment, aggravated by persistent inefficiencies in essential economic infrastructure as well as the stronger base in Q4.

While the economists expect an acceleration in growth in the remainder of the year, it is unlikely going to be enough to push the country to the growth levels it needs to address persistent issues like unemployment.

“Despite minor progress on the structural front, operating conditions remain challenging, and production costs are high,” Nedbank said.

“The weaker global recovery will weigh on output, particularly given South Africa’s elevated cost structures, underlying inefficiencies, and significant infrastructure constraints.”

This puts the South African government’s lofty target of 3% growth even further out of reach.

GDP expectations for 2025 have declined significantly since the start of the year, with an expected range of 1.6% to over 2.0% growth now sitting at about 1.4% growth at best, and below 1% growth at worst.

The South African Reserve Bank (SARB) was the latest to cut back its growth expectations for the year, lowering its forecast to 1.2% from 1.7% before.

The central bank estimates that the economy will grow by 0.1% quarter-on-quarter in the first quarter of the year, setting a poor momentum base for the quarters to come.

South Africa needs reforms, now

According to Nedbank, the only way South Africa can steer itself out of the slow-growth rut is by accelerating the necessary reforms to get the economy going.

“Accelerating structural reforms are the key to enhancing the international competitiveness of industries,” it said.

“This would enable the economy to grow faster and create more jobs without hitting supply bottlenecks, driving up costs, and stoking inflation.”

However, while the country has had some successes on this front—particularly with Operation Vulindlela (OV)—things are not pan out as quickly as many had hoped.

With the recent ‘launch’ of phase two of OV, it was made abundantly clear that many of the phase one projects were still lagging and being carried over to the next phase.

Economists at the Bureau for Economic Research (BER) warned that even the big successes of phase one, such as the load shedding crisis, could also still not be considered ‘over’.

Indeed, South Africa’s constrained electricity grid remains one of the biggest factors holding back economic growth.

While the country has escaped the “permanent” load shedding that set in between 2022 and early 2024, the first few months of 2025 were a stark reminder that slippage is still a reality, and the grid remains walking a fine edge.

This means that economic expansion in the country is effectively ‘capped’ until such time as the power grid has enough capacity to handle the growth, or alternatives are more readily available.

According to Nedbank, prospects for the country will likely improve in the next three years, but even then, unlikely to surpass the 1.5% mark, tracking population growth.