Treasury slashes SA's GDP forecast for 2025 by 0.5 percentage points on global headwinds

The National Treasury has revised South Africa's growth forecast for 2025/26 fiscal year drastically lower on the back of a weaker global outlook, trade frictions, increased uncertainty, and lower projected investment.

Finance Minister Enoch Godongwana told Parliament on Wednesday that since the publication of the Budget Review in March, greater uncertainty and trade fragmentation had contributed to a weaker economic outlook.

Godongwana highlighted that South Africa was highly exposed to external volatility as a small open economy dependent on global trade and financial inflows.

On the back of heightened trade tensions and elevated policy uncertainty weighing on the global outlook, Godongwana said Treasury had to revise its GDP figures downwards by 0.5 percentage points.

"As a result, we now estimate real GDP to grow at 1.4% in 2025. This is lower than the 1.9% we projected in March," he said.

Godongwana said the outlook was negatively affected by the impact of weaker-than-expected growth in the fourth quarter of 2024, along with persistent logistics constraints, heightened political uncertainty, high borrowing costs and global headwinds.

In the medium term, Treasury is forecasting domestic GDP to rise moderately to an average of 1.6% between 2025 and 2027, significantly lower than the 1.8% forecast two months ago.

"Over the next two years, we project real GDP growth to rise moderately, to 1.6% in 2026 and 1.8% in 2027," Godongwana said.

In recent months, the announcement of large tariffs by the United States, followed by a partial/temporary suspension of these measures, triggered severe volatility in global markets, trade and growth projections.

In April, the International Monetary Fund projected that global growth will fall from 3.3% in 2024 to 2.8% in 2025, recovering to only 3% in 2026.

Growth in advanced economies is expected to slow to 1.4% in 2025, dragged down by a weaker outlook for the US. Similarly, growth in emerging markets and developing economies is expected to slow from 4.3% in 2024 to 3.7% in 2025, with the largest downward revisions for countries hardest hit by recent US trade actions – particularly China and Mexico.

"At the same time, inflation expectations are now above central bank targets in many advanced and emerging market economies," Godongwana said. "And new trade barriers may raise inflation and prolong the cycle of higher interest rates."

Godongwana said the Treasury's strategy for faster growth, and to shield the country from the worst impacts of an increasingly uncertain global environment, remained anchored on maintaining macroeconomic stability, implementing structural reforms, improving State capability, and accelerating infrastructure investment.

He said although South Africa was benefiting from more stable power supply, structural constraints continued to limit economic growth and downside risks had broadened.

Godongwana said domestic risks have tilted to the downside, and also warned that port and rail constraints and increased spending pressures could undermine investment and growth.

He said that rapid and effective implementation of reforms was needed to accelerate growth and employment.

"Looking further ahead, the risks to the outlook remain elevated. These include the worsening global outlook, weaker-than-expected growth in the fourth quarter of 2024, the persistence of logistics constraints and higher borrowing costs," he said.

"These developments are a vivid reminder that we must urgently turn the tide on our economic prospects and get our fiscal affairs in order. Faster, inclusive growth that creates jobs is the only path towards a more prosperous South Africa."

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