Business confidence struggles amid tariff challenges and muted growth forecasts

South Africa's business confidence has once again taken a hit, declining by one point to a troubling 39 in the third quarter of 2025 as more than 60% of respondents were dissatisfied with the current business conditions.

This is according to the Rand Merchant Bank (RMB)/Bureau for Economic Research (BER) Business Confidence Index released this week. 

This sentiment trajectory places confidence significantly below the crucial 50-point threshold traditionally associated with satisfactory levels of business health.

Despite a slight easing from interest rate cuts earlier in the year, the BER said the economy continues to face headwinds stemming from external tariffs imposed by the United States, which have added a 30% levy on the majority of South African goods.

The 25 basis-point interest rate decrease initiated in July by the South African Reserve Bank (Sarb), coupled with its commitment to targeting an inflation rate of 3%, provided some temporary relief.

However, these measures appeared insufficient to dramatically alter the prevailing negative outlook within the business community, evidenced by the faltering momentum for economic growth and subdued fixed investment levels.

Many firms express hesitancy in expanding their operations or initiating new projects, indicating that investor confidence remains fragile.

According to the BER, the most notable sector shift came from the new vehicle dealers, which was the only sector to report confidence above the 50-point mark.

This marked improvement followed the interest rate cuts, hinting at how financial measures may ripple through certain sectors positively.

Meanwhile, sentiment in the building sector showed a mix of optimism; both residential and non-residential contractors reported an uptick in confidence, while the wholesale sector’s sentiment wavered amid weaker consumer goods sales.

The BER said manufacturing continues to struggle, reflecting the broader concerns of global trade uncertainties impacting local production.

Recent data revealed that while South Africa saw a rebound in mining and manufacturing production during the second quarter of 2025—a recovery primarily attributable to statistical base effects following rain-related disruptions—the long-term outlook appears dismal.

Essential minerals such as Platinum Group Metals (PGM) and gold did see an uptick in production, but analysts warn that without significant improvements in operating conditions or commodity prices, the mining sector's production growth remains compromised.

The Minerals Council of South Africa has highlighted challenges arising from rising operational costs, particularly in electricity and water tariffs coupled with labour costs. The MCI Cost Index saw a rise of 1.4% year-on-year, a harbinger of tougher conditions for the sector.

The BER said these escalating costs are further compounded by anticipated significant increases in electricity prices to recoup prior underestimations, creating additional pressure on an already beleaguered sector.

In manufacturing, seven of 10 divisions reported higher growth in the second quarter, but diluted due to an overall contraction as indicated by the Purchasing Managers Index, which fell back to 49.5 in August. The decline was chiefly driven by plummeting new sales orders as firms contend with weakened domestic and global demand exacerbated by tariff impacts.

Recent government initiatives, such as the announcement of significant reforms for the freight rail network, aimed to simplify third-party access for train operating companies (TOCs), signal a potential shift towards enhancing logistics capacity within the transport sector.

"In August 2025, the Minister of Transport announced a major reform milestone toward enabling third-party access to the freight rail network. Eleven of 25 TOCs, who had applied, were approved to operate on Transnet’s rail network, with the capacity to carry an additional 20 million tons of freight annually from 2026/27," said BER.

"This will supplementTransnet’s current 160 million tons and support their target of raising freight volumes to 250 million tons a year by 2029. The approved TOCs will operate across six key freight corridors, transporting commodities such as coal, chrome, manganese, iron ore, fuel, magnetite, containers and sugar."

Overall, the BER said as South Africa navigates through these multifaceted economic challenges, expectations for growth remain cautious. Analysts project a modest economic growth rate of 1% for 2025 and a slight increase to 1.4% in 2026, underscoring the crucial need for strategic interventions to bolster the economy's resilience.

BUSINESS REPORT