Absa Corporate and Investment Banking (CIB) has slashed its 2025 GDP growth forecast for South Africa by half, from 2.1% to 1.0%, due to heightened global uncertainties. The updated outlook was presented in the South Africa Q2 2025 Quarterly Perspectives report on Wednesday.
Miyelani Maluleke, a senior economist at Absa CIB, said in Absa’s Q1 Quarterly Perspectives, that they had forecast that real GDP growth could improve to 2.1% in 2025 supported by a combination of improved domestic infrastructure, household finances, higher levels of business confidence, recovery from drought conditions, and broadly stable global growth.
However, this forecast has now changed. “While some of these factors seem likely to remain supportive, others have deteriorated. We still expect real GDP growth to improve from 2024, but we revise our forecast to 1.0% for 2025. We also trim our forecast for 2026 to 1.4% from 2.1% previously,” he said.
Absa CIB forecast overall investment growth of 1.9% in 2025 and 3.2% in 2026.
“The degree of uncertainty around these forecasts is much higher than usual, mainly due to the external environment. The progression of the negotiations on global trade will be critical for the strength of the world economy, and as a small open economy, South Africa’s own prospects are strongly linked to this,” Maluleke said.
He said a more difficult and uncertain global environment is a big challenge for South Africa. A sharp escalation in trade tensions is set to dampen global growth as tariffs disrupt trade, and increased policy uncertainty adversely affects business sentiment and investment decisions. For South Africa, less favourable trade arrangements with the US will hit various sectors of the economy more directly, while potentially weaker global growth will weigh on broader export performance, he further said.
Domestically, policy disagreements within the Government of National Unity (GNU) and a delayed 2025 Budget have raised concerns about the coalition’s stability. Additionally, increased plant breakdowns at Eskom and moderate load shedding highlight ongoing electricity supply challenges. Despite these headwinds, low inflation offers some support. Headline CPI inflation fell to a near-five-year low of 2.7% in March, bolstered by a 13% drop in oil prices since early April. Absa CIB projects inflation to remain below the 4.5% target midpoint until Q2 2026, averaging 3.3% in 2025 and 4.4% in 2026.
Absa CIB expects the South African Reserve Bank to cut interest rates further, with a 25 basis-point reduction anticipated in May and another in July, following a March decision to hold the repo rate at 7.50%. Lower rates should ease debt service costs and support consumer spending, which is projected to grow by 1.7% in 2025. Despite early Q1 labour market weakness, with 291 000 net job losses, consumer incomes are improving, and credit health is recovering.
Economic sluggishness and fiscal pressures may sharpen the focus on reforms. Progress continues in logistics, electricity, and local government service delivery, with President Ramaphosa launching Phase II of Operation Vulindlela to deepen reforms in network industries, municipalities, spatial integration, and government digitalization. However, the global economic outlook has worsened since Absa’s last report, particularly after the US imposed a 10% universal tariff on exports and higher reciprocal tariffs on 60 countries, including South Africa, starting April 2. These measures cloud the global trade environment, making it challenging to predict impacts on trade and growth.
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