SA’s economic mood is brighter, but fundamentals lag

South Africa’s economic mood may have improved, but the fundamentals have not followed at the same pace, warns Anlu Keeve, Economic Policy Analyst at the Institute of Race Relations.

The 2025 Gross Domestic Product (GDP) figures vindicate this warning.

South Africa’s economy grew by 1.1% in 2025, its strongest annual performance since 2022. This looks like welcome progress, Keeve notes, but closer examination reveals a far less reassuring picture.

The main positive contributors to growth were finance, real estate and business services, and agriculture, forestry and fishing, with each adding 0.4 of a percentage point to overall GDP growth. However, the sectors most closely tied to the economy’s productive base continued under performing. Construction reported the largest negative growth (-4.4% year-on-year), followed by electricity, gas and water (-4.3%) and manufacturing (-1.2%), each subtracting 0.1 of a percentage point from GDP growth.

Households’ final consumption expenditure grew by 3.6% year-on-year, contributing 2.4 percentage points to growth, while gross fixed capital formation decreased 2.2% year-on-year, contributing -0.3 of a percentage point. Exports decreased by 2.5% year-on-year, contributing -0.7 of a percentage point, and imports grew by 1.1% year-on-year, contributing -0.3 of a percentage point. Headline growth in expenditure on GDP rose by 1.4% year-on-year.

Keeve says this shows that South Africa is spending its way to the limited economic growth it is managing to achieve, but that growth is not being driven by production and investment. Households continued to support activity, but domestic industries did not expand at the same pace. That is not the basis for durable growth.

“Consumption can keep the economy moving for a while, but it cannot carry long-term growth unless investment rises and the productive sectors strengthen,” Keeve says. “That is why the latest figures do not point to an economy that has turned the corner. The growth base remains narrow, investment remains weak, and the economy remains vulnerable to shocks from abroad.”

Keeve adds that the vulnerability matters even more because 2026 is already off to a difficult start. The Iran conflict has added new uncertainty to global energy markets. Any prolonged disruption around the Strait of Hormuz would raise the risk of higher oil prices, weaker global growth, renewed inflation pressure, and stubborn interest rates. South Africa is already exposed to imported cost pressures and weak export performance – these new pressures can easily outweigh some of the support that firmer commodity prices provided in 2025.

South Africa cannot control global conflict or oil markets, but it can do far more to strengthen its own economy. That means creating the policy conditions for higher fixed investment, export competitiveness, entrepreneurship, and employment opportunities. The IRR’s Blueprint for Growth paper, Arming SA’s pro-growth forces, published last month, sets out a practical and implementable course of action to achieve this.  

Concludes Keeve: “The 2025 GDP figures show that growth remains weak and risks being too easily knocked off course. That matters even more in 2026. When the next external shock comes, as it always does, a stronger domestic policy environment will make all the difference.”

Media contact: Anlu Keeve, IRR Economic Policy Analyst and Research Coordinator Tel: 071 929 9516 Email: anlu@irr.org.za

Media enquiries: Michael Morris Tel: 066 302 1968 Email: michael@irr.org.za