By: Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano
South Africa's GDP growth in 1Q25 was a modest 0.1% q/q and 0.8% y/y, with most sectors, particularly the productive ones such as construction, mining, and manufacturing, recording contractions. While household consumption expenditure growth was maintained, the demand side of the economy reflected ongoing declines in government consumption, exports, and total fixed investment.
Of particular concern is the sharp 4.5% q/q decline in private sector fixed investment, which also contracted by 4.7% y/y (not seasonally adjusted). Investment remains subdued as a share of GDP, reflecting a weaker investment climate amid persistent macroeconomic and policy uncertainty. The benefits of the economic reforms implemented thus far are taking longer to materialise, as evidenced by the continued weakness in fixed investment. Private sector fixed investment remains constrained at around 10.1% of GDP, well below the 15.7% recorded at the end of 2008.
Export volumes also remained subdued, constrained by both a challenging external environment and persistent domestic logistical bottlenecks. This is reflected in real net exports remaining in deficit since the beginning of 2011 (excluding the pandemic year of 2020). Exports accounted for 27.8% of GDP in 2024, down from 30.1% in 2007, indicating subdued export-led growth. The outlook for exports remains clouded by ongoing global tariff uncertainty. It will be critical for the Government of National Unity (GNU), alongside exporting businesses, to strengthen trade relations with existing major partners while exploring new export markets.
Considering the prevailing weakness in private sector investment and subdued business confidence, reflected in the latest BER survey, we have revised our 2025 growth forecast down to 1.0%, from 1.3% previously. Nonetheless, we still expect growth to rise towards 2.0% by 2027, supported by ongoing structural reforms and cyclical tailwinds, including easing inflation and interest rate cuts, which should bolster household consumption.
Overall, our near-term forecasts balance weak investment trends with a gradual recovery in consumer spending. However, risks remain tilted to the downside, particularly for fixed investment, given the still-fluid macroeconomic and policy environment.
Week in review
The seasonally adjusted manufacturing PMI fell further to 43.1 index points in May, from 44.7 points in April, marking the seventh consecutive month of contraction. While there was some improvement in business activity and new sales order ratings, both remained in negative territory at 43.4 and 38.3 points, respectively. Supplier delivery times declined from 56.6 to 49 points and respondents suggest that this is due to weak demand rather than improving logistical constraints. Fortunately, the index for expected business conditions in the near term increased by 13.9 points to 62.5, highlighting a lift in sentiment as external tariffs have been reduced and local policy uncertainty has abated.
New vehicle sales rose sharply by 22.0% y/y to 45 308 units in May, up from a solid 11.8% growth in the previous month. Dealer sales made up the bulk of the total, accounting for 88.4%, while the rental industry, corporate fleets, and government purchases contributed 6.8%, 3.0%, and 1.8%, respectively. The improvement was broad-based across segments. The new passenger car segment saw a notable 30.0% increase to 31 741 units, with rental sales comprising 8.5% of this figure, reflecting strong consumer demand. Light commercial vehicle sales grew by 5.8% to 10 938 units. Medium and heavy truck sales also performed well, with medium trucks up 22.7% to 660 units and heavy trucks and buses increasing by 6.7% to 1 969 units.
The RMB/BER Business Confidence Index (BCI) declined by five points to 40 in 2Q25, signalling a pause in business sentiment recovery that began in 2Q24. Despite remaining above the 2023-2024 average, confidence dipped slightly below the long-term norm, driven by declines in four of the five sectors, partially offset by a sharp increase in wholesale trade confidence. The survey, conducted from 7 - 26 May, was shaped by several external and domestic factors, including ongoing diplomatic tensions between the United States (US) and South Africa, global trade uncertainty, and persistent local logistical challenges. While equity markets showed some recovery following a pause in US trade tariffs, the rand experienced notable volatility. Locally, businesses were aware that a proposed VAT hike had been scrapped, though many responded before the release of Budget 3.0. Political uncertainty surrounding the GNU also influenced sentiment, though concerns about its stability eased somewhat during May.
The current account deficit narrowed further to R35.6 billion in 1Q25 from R39.3 billion (revised from 31.6 billion) in 4Q24. As a percentage of GDP, the current account deficit was unchanged at 0.5% (4Q24 was revised down from 0.4%). The narrowing of the deficit was supported by the services, income, and transfer (SIT) account, which recorded a narrower deficit of R256.8 billion (3.5% of GDP) versus R265.7 billion (3.6%) in 4Q24. Meanwhile, the trade surplus narrowed to R221.2 billion (3.0% of GDP) from R226.4 billion - as the value of imports increased faster than that of exports. The strength in gold prices and other safe-haven commodities, versus softer oil prices, should continue to support SA's terms of trade, which increased in 1Q25. Over the medium term, the unwinding of logistical constraints and stronger trade relations will be important in insulating SA's external position.
After 16 consecutive months of annual increase, and 1.2% y/y (previously 1.1%) growth in March, electricity production recorded no growth in April. Monthly momentum also slowed in April, with the seasonally adjusted data posting 0.1% m/m growth versus 0.9% in March. The utilities sector has hit a few snags this year and weighed on 1Q25 GDP growth. This highlights the need for continued investment and reform in these key network industries in order to secure sustained performance improvements going forward.
SA's gross foreign exchange reserves lifted to $68.1 billion in May, up from $67.6 billion in April. The increase in foreign reserves and the international liquidity position was once again due to an increase in gold reserves and there were also market activity and valuation gains. These were countered by foreign currency payments made on behalf of government.
Week ahead
On Monday, the FNB/BER Building Confidence Index for 2Q25 will be published. The index registered a marginal increase to 41 points in 1Q25 from 40 points previously, reflecting largely stable but persistently subdued sentiment within the building sector. Subsector performance was mixed: hardware retailers, quantity surveyors, and building subcontractors reported higher confidence in the first quarter, while main contractors, architects, and building material manufacturers experienced declines. Despite a contraction in main contractor activity, optimism regarding near-term prospects remained, corroborated by increased architect activity, which is indicative of potential future demand. However, concerns regarding municipal inefficiencies and the potential for unfulfilled expectations pose risks to the near-term outlook.
On Tuesday, manufacturing production data for April will be released. Manufacturing production output (not seasonally adjusted) declined by 0.8% y/y in March, following a 3.2% y/y decline in February - marking the eighth consecutive month of annual contraction. Seasonally adjusted manufacturing output, which aligns with the official calculation of quarterly GDP growth, contracted sharply by 2.2% m/m, after expanding by 0.7% m/m in February.
On Thursday, data on mining production for April will be released. Mining production (not seasonally adjusted) declined again in March, by 2.8% y/y, after falling by 9.7% y/y in February. This marked five successive months of annual decline. Seasonally adjusted mining output expanded by 3.5% m/m, reflecting a rebound from a 4.1% monthly decline in February.
Tables
The key data in review
| Date | Country | Release/Event | Period | Act | Prior |
|---|---|---|---|---|---|
| 2-Jun | SA | Manufacturing PMI | May | 43.1 | 44.7 |
| SA | New vehicle sales % y/y | May | 22.0 | 11.8 | |
| 3-Jun | SA | GDP % y/y | 1Q | 0.8 | 0.8 |
| SA | GDP % q/q, seasonally adjusted | 1Q | 0.1 | 0.4 | |
| 4-Jun | SA | BER Business Confidence Index | 2Q | 40 | 45 |
| 5-Jun | SA | Current account balance R billion | 1Q | -35.6 | -39.3 |
| SA | Current account % of GDP | 1Q | -0.5 | -0.5 | |
| SA | Electricity production % y/y | Apr | 0.0 | 1.2 | |
| 6-Jun | SA | Gross foreign exchange reserves $ billion | May | 68.1 | 67.6 |
Data to watch out for this week
| Date | Country | Release/Event | Period | Survey | Prior |
|---|---|---|---|---|---|
| 10-Jun | SA | Manufacturing production % y/y | Apr | -- | -0.8 |
| SA | Manufacturing production % m/m | Apr | -- | -2.2 | |
| 12-Jun | SA | Mining production % y/y | Apr | -- | -2.8 |
| SA | Mining production % m/m | Apr | -- | 3.5 |
Financial market indicators
| Indicator | Level | 1 W | 1 M | 1 Y |
|---|---|---|---|---|
| All Share | 96,411.77 | 1.80% | 4.70% | 25.50% |
| USD/ZAR | 17.73 | -0.40% | -2.90% | -6.40% |
| EUR/ZAR | 20.29 | 0.20% | -1.90% | -1.40% |
| GBP/ZAR | 24.07 | 0.10% | -0.90% | -0.60% |
| Platinum US$/oz. | 1,140.60 | 5.00% | 18.30% | 14.10% |
| Gold US$/oz. | 3,352.65 | 1.00% | 0.60% | 42.30% |
| Brent US$/oz. | 65.34 | 1.90% | 8.50% | -16.70% |
| SA 10 year bond yield | 9.3 | -1.10% | -4.30% | -19.50% |
FNB SA Economic Forecast
| Economic Indicator | 2022 | 2023 | 2024f | 2025f | 2026f | 2027f |
|---|---|---|---|---|---|---|
| Real GDP %y/y | 2.1 | 0.8 | 0.5 | 1.1 | 1.6 | 1.9 |
| Household consumption expenditure % y/y | 2.6 | 0.2 | 1.0 | 2.4 | 2.0 | 2.1 |
| Gross fixed capital formation % y/y | 5.9 | 3.0 | -3.9 | 0.9 | 2.7 | 3.6 |
| CPI (average) %y/y | 6.9 | 6.0 | 4.4 | 3.5 | 4.3 | 4.3 |
| CPI (year end) % y/y | 7.2 | 5.1 | 3.0 | 4.3 | 4.2 | 4.3 |
| Repo rate (year end) %p.a. | 7.00 | 8.25 | 7.75 | 7.00 | 7.00 | 7.00 |
| Prime (year end) %p.a. | 10.50 | 11.75 | 11.25 | 10.50 | 10.50 | 10.50 |
| USD/ZAR (average) | 16.40 | 18.5 | 18.3 | 18.3 | 18.5 | 18.6 |
