GDP higher, but where are the investments for economic growth?

South Africa’s GDP growth surprised economists because it was higher than they predicted, but the question now is where the investments for economic growth are. The country’s GDP increased to 0.8% in the second quarter from 0.1% in the first quarter. 

The economists all agree that the 0.8% increase in GDP was better than expected, mainly driven by stronger manufacturing, trade, and mining activity. Household consumption was also a salient driver of growth, while exports and fixed investment contracted at the end of the first half of the year.

Jee-A van der Linde, senior economist at Oxford Economics Africa, says the stronger-than-expected bounce-back in gross domestic product (GDP) in the second quarter means they will revise their full-year 2025 growth forecast of 0.8% slightly higher, to just above 1%, while next year’s projection of 1.3% remains unchanged.

“However, the stronger GDP numbers for the second quarter stand in contrast with the rise in unemployment during the corresponding quarter.

“Meanwhile, the impact of US tariffs is expected to become more pronounced in the second half of 2025. The drop in business confidence in the third quarter suggests that economic activity is unlikely to pick up strongly in the near term, as firms adjust to higher US tariffs after starting the year with tariff-free access to the US market.”

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Sustained GDP recovery depends on turnaround in investment

Maarten Ackerman, chief economist at Citadel, cautions that while South Africa has clear pockets of resilience, unlocking sustained recovery depends on decisive implementation of structural reforms and policies that encourage private-sector participation.

“Until we see a turnaround in investment, budgets will remain tight and ratings agencies unconvinced. The GDP results signal cautious optimism and have shown that the economy can deliver short-term recoveries even against a difficult global backdrop. But lasting growth requires unlocking fixed investment, addressing structural barriers and ensuring reforms translate into tangible economic activity.”

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Recovery in GDP expected to continue for rest of the year

Crystal Huntley, Johannes (Matimba) Khosa and Nicky Weimar, economists at the Nedbank Group Economic Unit, say the recovery is likely to continue into the second half of the year.

“On the production side, a relatively stable power supply, slight improvements in logistics and firmer domestic demand will underpin activity in most industries, but weaker global demand, hurt by increased protectionism and heightened policy uncertainty, will weigh on export-orientated sectors.

“We forecast GDP to grow by 1.2% in 2025, with significant downside risk. Growth should improve to an average of around 1.5% in the next three years, underpinned by easing structural constraints and higher consumer spending.”

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Structural reforms could lift potential GDP growth

Sanisha Packirisamy, chief economist at Momentum Investments, says their growth forecasts remain cautious. “We expect GDP growth of 1% in 2025 and 1.4% in 2026. These estimates are in line with the Reuters median consensus from the August 2025 Econometer poll.”

She warns that meaningful near-term growth prospects are constrained. “Low business confidence in the third quarter points to limited investment and hiring. Higher US tariffs will weigh modestly on growth, while rising electricity tariffs are raising input costs and squeezing household disposable incomes.

“We remain constructive on the medium-term outlook as structural reforms could gradually lift potential growth.”

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US tariffs and trade uncertainty weigh on GDP growth

Thanda Sithole, senior economist at FNB, says they maintain their 1.0% growth forecast for 2025, rising gradually to 1.4% in 2026 and 1.9% in 2027. “While US tariffs and trade uncertainty weigh on projections, growth is supported by a benign domestic inflation environment, cumulative interest rate cuts with further reductions expected from late 2026 and ongoing structural reforms in network industries.

“Sectoral dynamics are also providing resilience as automotive sales remain strong, supported by lower borrowing costs and rising demand for entry-level brands, while agriculture is benefiting from favourable weather and increased machinery investment, and mining and manufacturing is showing early signs of recovery. Retail trade continues to expand, reflecting improving consumer fundamentals and wage growth outpacing inflation.”

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Decisive reforms needed to unlock investment, not only GDP

Casey Sprake, economist at Anchor Capital, says the GDP rebound is a welcome signal that parts of the economy still have the capacity to surprise on the upside. “Nonetheless, for South Africans on the ground, the reality is that growth remains too low, too narrow and too fragile to meaningfully ease unemployment, reduce inequality, or lift real household incomes.

“Without decisive reforms to unlock investment and rebuild confidence, the economy risks remaining stuck in a low-growth trap, where even small gains feel elusive against the weight of structural constraints and everyday cost pressures.”

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Worrying that exports already showing negative trend in GDP data

Prof Raymond Parsons, NWU Business School economist, says the increase in GDP confirms that the incipient economic recovery has accelerated and widened in the second quarter by involving several more sectors in supporting economic growth. “This is much better news on the growth front for some time.

“One worrying factor is that exports already showed a negative trend in the second quarter, at a time of pending further global uncertainty. Another weak link in the economic scenario is the continued negative performance of fixed capital formation, which is the kingpin of sustained economic growth.

“Therefore, South Africa must now build and expand on the incipient economic recovery. New global headwinds, as well as continued domestic policy challenges, require economic reforms to go further and faster and boost investor confidence. This will help to strengthen economic resilience and maximise investment and growth.’