By Thanda Sithole
Real GDP (not seasonally adjusted) grew by 0.6% y/y in 2Q25 (versus our 0.7% expectation), following increases of 0.8% y/y in both 1Q25 and 4Q24. On a seasonally adjusted (non-annualised) basis, the economy expanded by 0.8% q/q, sustaining momentum after the 0.1% rise in the previous quarter. This outcome was 0.3-percentage points (ppts) above both our forecast and the Reuters consensus of 0.5% q/q.
Nominal GDP grew by 2.5% y/y, marginally down from 2.6% in 1Q25. Compensation of employees rose by 3.7% y/y, slowing from 4.3% (previously 3.9%) in the prior quarter, but still outpaced the average inflation rate of 2.9%.
Outlook
We maintain our 1.0% growth forecast for 2025, rising gradually to 1.4% in 2026 and 1.9% in 2027. While US tariffs and trade uncertainty weigh on projections, growth is supported by a benign domestic inflation environment, cumulative interest rate cuts with further reductions expected from late 2026, and ongoing structural reforms in network industries. Sectoral dynamics are also providing resilience as automotive sales remain strong, supported by lower borrowing costs and rising demand for entry-level brands; agriculture is benefitting from favourable weather and increased machinery investment; and mining and manufacturing is showing early signs of recovery. Retail trade continues to expand, reflecting improving consumer fundamentals and wage growth outpacing inflation.
Supply- and demand-side drivers
Mining, manufacturing, as well as the trade, catering, and accommodation sectors, each contributed 0.2ppts to quarterly GDP growth, with q/q growth of 3.7%, 1.8%, and 1.7%, respectively. Mining gains were led by PGMs, gold, and chromium ore; manufacturing by petroleum-related products, motor vehicles, parts and accessories, and other transport equipment; and trade, catering, and accommodation by retail (+0.9%), motor trade (+0.6%), accommodation (+4.1% nominal), as well as food and beverages (+2.7%).
Finance, real estate, and business services; general government services; personal services; and agriculture each added 0.1ppt. Finance and business services grew 0.3% q/q, supported by financial intermediation and real estate activities. General government services rose 0.7% q/q, recovering from a three-quarter technical recession, supported by higher employment. Personal services increased 0.5% q/q, following a two-quarter technical recession. Agriculture grew 2.5% q/q, down from 18.6% in 1Q25, led by horticulture and animal products.
On the downside, transport, storage, and communication declined 0.8% q/q, reflecting lower land transport and support services. Construction (-0.3% q/q) as well as electricity, gas, and water (+0.2% q/q) made negligible contributions.
From the demand side, private household consumption increased 0.8% q/q, marking a fifth consecutive quarterly rise. Strong growth was observed in restaurants and hotels (4.8% q/q), clothing and footwear (3.4%), as well as miscellaneous goods and services (2.6%).
Gross capital formation rose 2.2% q/q, reflecting inventory restocking of R16.6 billion (annualised) following a R6.7 billion destocking in the prior quarter, contributing 0.5ppts. However, gross fixed capital formation (i.e., investment in long-term productive assets) declined 1.4% q/q, largely due to a 33.5% drop in public corporation investment and a 3.4% fall in government investment. Private business enterprise investment rose 5.6% q/q, despite subdued confidence, policy uncertainty, and weak demand, though it remains down 0.3% y/y after a 6.5% fall in 1Q25. While the rebound is encouraging, the year-to-date decline of 3.4% suggests our forecast for a mild contraction may need downward revision, though annual GDP growth is unlikely to be affected given the strong performance in other components.
External trade weakened, with exports down 3.2% q/q, led by base metals, vegetable products, as well as vehicles and transport equipment (excluding large aircraft). Imports declined 2.1% q/q, reflecting lower trade in chemical products, machinery and electrical equipment, mineral products, and vegetable products.
