Economists have welcomed the tabling of the 2025 Budget Review and the assumptions it has made though they warned that the National Treasury’s economic growth forecasts were still a bit optimistic.
Treasury on Wednedsday 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.
However, Momentum Investments chief economist, Sanisha Packirisamy, said Treasury’s estimates may be impacted by uncertainty in the global economy.
“Although Treasury’s 2025 real growth forecast of 1.4% is broadly in line with the Reuters median consensus of 1.5% in the April survey, Treasury’s forecast for fixed investment growth of 3.2% in 2025 (revised lower from 5.0% in Budget 2.0) looks optimistic given the sharp rise in global and local measures of trade and political uncertainty,” she said.
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.
Professor Raymond Parsons, an economist at the North-West University’s Business School, said various compromises and trade-offs now inevitably have been necessary to now achieve a workable ‘balancing of the books’, which is confidence-building.
Parsons said the commitment to spending reviews is also an essential one. He said the overall thrust of the third Budget shows a strong pivot in fiscal strategy towards growth and investment, which is where the basic solutions to South Africa’s public finance challenges ultimately lie.
“The fact that the original assumption underpinning the Budget of 1.9% GDP growth this year has been sharply reduced to 1.4% recognises the new global and domestic economic realities shaping SA’s growth prospects.
“While this assumption may still be on the optimistic side, the more conservative Treasury projection nonetheless simply confirms why the third budget needed to be strongly growth-dominated. If SA wants to grow its tax base to enlarge its fiscal space, it needs a rapidly expanding economy in which job creation accelerates. And taxpayers must see they are getting value for money, on which the Budget proposals need to win the trust and confidence of citizens.”
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