South African economy stuck in survival mode

South Africa’s GDP growth of 0.8% in the second quarter has revived hopes of reaching over 1% annual growth in 2025 and forecasted growth of 1.3% in 2026.

This would be the most significant economic growth the country has seen for much of the past decade, but it is still not enough to bring material improvements to ordinary South Africans.

This is according to Chief Economist at the Bureau for Economic Research (BER), Lisette Ijssel de Schepper, who said that South Africa “could and should do better.”

“We need to wake up. South Africa cannot grow when it is in survival mode; when business confidence is low; and investment, the engine of growth and jobs, is stalling,” she said. 

Statistics South Africa recently released its GDP data for the second quarter, showing mere 0.8% growth quarter-on-quarter, far below the government’s over 3% goal.

This growth was driven by the mining and manufacturing sectors, which turned positive after two quarters of decline. 

Manufacturing production expanded by 1.8%, driven mainly by the automotive and petroleum, chemicals, rubber & plastics divisions. 

Mining output grew by 3.7%, the fastest pace since the first quarter of 2021. Platinum group metals, gold, and chromium ore were the main positive contributors.

Wealth and asset management company Anchor said it is important to keep in mind, however, that this data reflects activity before the implementation of the Trump administration’s 30% tariff hikes on imports to the US. 

“The timing matters, while the second quarter data offers a snapshot of an economy finding its feet, the impact of these higher trade barriers is only beginning to filter through.”

Further dampening this uptick in GDP growth, Ijssel de Schepper noted in an article for Business Day that private sector fixed investment, the linchpin of sustained economic growth, shows no signs of significant recovery.

She said that the consumer has been a central driver of growth post-1994, alongside government spending. 

“But the consumer and state can only spend so much before the money runs out.  While investment-led recoveries are rare in South Africa, fixed investment is the fuel that is needed to keep the engine running,” she said.

Investment is the fuel needed to keep the engine running

Real investment peaked in 2009 at R530 billion per year, 14.7% of GDP, and remained at that level before falling to below R500 billion in 2023 and 2024. 

Fixed investment is currently 11% lower than in the fourth quarter of 2019, and private sector fixed investment is 22% lower, while consumer spending is 5% higher. 

Ijssel de Schepper warned against blaming corporate South Africa for this. Using collected responses from South African businesses, the BER found that structural issues are restraining private investment. 

This includes loadshedding, political risk, red tape, and the high cost of doing business, which has weighed on business confidence, along with a rising tax burden and higher borrowing costs. 

“Some retailers say they have to deal with unexpected surcharges on top of their rental agreements because, for instance, the mall now needs its own water tanker,” she said.

“Meanwhile, building contractors complain they are struggling to pay their workers because they are not getting paid on time for work done, often by the government.”

She added that dealing with crime and construction mafias has become so widespread that paying for “protection” has become a permanent business expense for some.

Businesses were generally survival-focused in their survey responses, not focused on gaining a competitive edge. 

She said that beyond this, activity indicators, including production, sales, employment, and selling prices, paint the same dismal picture. 

The latest StatsSA labour force survey for the second quarter of 2025 indicates that the official unemployment rate has risen to 33.2%, from 29% in 2019. 

GDP growth not keeping up with population growth

Maarten Ackerman, Chief Economist at Citadel, noted that an analysis of GDP growth must take into account population growth. 

The latest quarterly results show a year-on-year GDP growth of 0.6%. 

“Annual growth of just 0.6% is still about one percentage point below population growth, highlighting the structural constraints preventing SA from reaching its true potential.”

Chief Economist at the Efficient Group, Dawie Roodt, is pessimistic that South Africa’s GDP growth for the year will reach above 1%.

“I think that the effect of the US tariffs in the third quarter will be more severe; it will be fully felt, while in the second quarter, the full impact was not yet felt,” he said in an interview with East Coast Radio. 

“With this kind of rate of economic growth, we are probably looking at an economic growth for the year that is probably going to be just below 1% or so.”

Ijssel de Schepper recommends that the government officially target both lower inflation and a primary budget surplus, as well as announce credible successors to key institutions. 

This includes the National Prosecuting Authority and the SA Revenue Service. Additionally, de Schepper recommends that Operation Vulindlela have the full-time resources it needs. 

The Presidency and the National Treasury recently released a progress update on Operation Vulindlela, saying that sustained progress in the economic reform agenda has been achieved. 

Phase I of the operation focuses on the electricity, freight, logistics, water, telecommunications, and the visa system, to catalyse investment and enhance economic competitiveness. 

Phase two will centre on reforms in the local government system, with the introduction of a performance-based financing mechanism to support reform of municipal water and electricity services. 

Ijssel de Schepper affirmed that the next frontline of the battle should be at a municipal level, “otherwise we will never win the fight,” she said.