South Africa’s ongoing structural reforms provide some tailwinds to growth amid global uncertainty
• South Africa’s growth: The domestic economy began the year on a subdued trajectory, with underlying structural constraints persisting alongside intensifying global headwinds, including rising protectionist measures. Progress in implementing government’s structural reform agenda, particularly through Operation Vulindlela, is expected to provide gradual support to growth over the medium term.
• Inflation targeting: With headline inflation having slowed meaningfully, the South African Reserve Bank sees this as an opportunity to entrench lower inflation expectations at minimal cost. Therefore, the SA Reserve Bank is considering adopting a 3% inflation target, aligned with the lower bound of the current 3–6% range.
• SA Bonds: South Africa’s bond market has seen highly volatile net flows from non-residents over the past 18 months, reflecting shifting sentiment driven by global and local macroeconomic developments. April and May bond movements were, in particular, negatively impacted by the US announcement of new tariffs. However, Investor confidence rebounded strongly in June 2025 as seen in the notable increase in net purchases by non-residents, due to, among other factors, the country’s improved inflation outlook.
• SA Financial Action Task Force (FATF) greylisting: In a major development announced by the National Treasury on June 13, 2025, South Africa has substantially completed all 22 action items outlined in the FATF greylisting Action Plan.
• Agriculture: Following its strong rebound in the final quarter of 2024, agriculture kept up the momentum during the first quarter of 2025 amid markedly improved confidence in the sector. Notwithstanding the slight drop in confidence during Q2-2025, the confidence levels still signal optimism within South Africa’s agribusiness sector due to factors such as favorable summer rainfall and improved port operations.
• Investment: Gross fixed capital formation has remained subdued, particularly since the second half of 2023. However, the approval of a US$1.5 billion World Bank loan in June 2025 provides a potential boost. Targeted at reforms in energy, freight transport, and the low-carbon transition, the financing is expected to help ease infrastructure bottlenecks and could support a gradual recovery in investment activity.
• Tariffs: Despite the new changes in SA's trade relationship with the US and the newly introduced 30% tariff line, around 35% of South Africa’s exports remain exempt from these tariffs, with exceptions covering key products.
• Inflation: Inflation has moderated significantly from its post-COVID-19 highs, contributing to a notable decline in inflation expectations. Still, while it is generally contained relative to its post-Covid 19 highs, due to higher food and utility prices, as well as fuel prices that are no longer falling as rapidly as they did in the recent past, we expect overall inflation to remain higher than its lows of the past few months.
• Interest rates: Amid the prevailing insipid economic environment, alongside tamer inflation, the Reserve Bank has been reducing interest rates since H2-2024, with the July 2025 cut being the fifth one.
• Exchange rate: Over the past three months, the rand has strengthened against all three major currencies, with the most notable gains recorded against the US dollar.
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