Finance minister Enoch Godongwana foresees modest growth for the South African economy, projecting real GDP growth to reach 1.9% this year but no substantial improvement by the 2027/2028 financial year, according to his 2025 budget speech.
Godongwana could not table the budget in parliament on Wednesday as the government of national unity's cabinet could not approve it. The Budget will now be tabled on 12 March.
The budget documents, which were not tabled but have been seen by reporters and economists, propose expenditure of R23.4bn to cover the costs of the 2025 public service wage agreement.
Godongwana's written speech said the International Monetary Fund forecasts global economic growth of 3.3% in 2025, with global trade expected to weaken from 3.4% in 2024 to 3.2% in 2025.
“Domestically, economic growth remains below aspirations. Real GDP growth is forecasted at 0.8% in 2024. This is lower than the estimated 1.1% during the 2024 MTBPS. The downward revision is due to weaker-than-expected outcomes in the third quarter of 2024. Over the medium-term, however, growth is forecast to average 1.8%.”
He said the domestic outlook is supported by higher investment and household consumption, aided by a stable inflation outlook, moderate employment gains and improving household balance sheets.
The Budget Review document said the government’s cost of servicing debt was significantly higher than that of peer countries. However, debt service costs were expected to peak and stabilise at 76.1% of GDP in 2025/2026.
Government debt rose from R1.79-trillion in 2014/2015 to R5.26-trillion in 2023/2024 while rapid growth in debt service costs, above inflation wage settlements and repeated SOE bailouts caused consolidated government spending to rise from R1.23-trillion to R2.26-trillion in the same period.
The review said South Africa’s economy is forecast to grow at an average of 1.8% over the next three years as momentum starts to pick up after more than a decade of stagnant growth.
“Continued easing of structural constraints will support the economy by fostering additional investment, including in infrastructure.”
According to documentation supporting the budget, forecasts on household consumption and gross fixed capital formation have been revised lower while government consumption has been revised higher over the medium-term.
“National Treasury projects growth of 1.9% in 2025, from a revised estimate of 0.8% in 2024, which reflects weaker than expected GDP outcome in the third quarter driven up by a sharp contraction in the agriculture sector.”
The National Treasury modelled two alternative scenarios to the baseline GDP growth forecast along with the baseline. The optimistic scenario coupled with rapid infrastructure investment, capital spending by SOEs, and increased energy supply sets real GDP growth at 2.7% in 2025.
The more moderate scenario, which takes into account slower global growth, global trade fragmentation, restrictive trade policy and inflationary pressures, put South Africa’s 2025 GDP growth at 1.4%.
The budget estimates that growth will be driven by easing supply-side constraints, easing of monetary policy by the South African Reserve Bank which returned to cutting rates last year, prudent fiscal policy as well as fixed investment and trade volumes.
It forecasts GDP at current prices to grow from R7.873-trillion in 2025 to R8.947-trillion in 2027. Consumer price inflation is expected to average 4.5% in 2025, 4.6% in 2026, and then ease to 4.4% in 2027.
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