Economic recovery needs maximum support to strengthen upturn

The disappointing gross domestic product (GDP) growth figure of 0,1% for the first quarter of 2025, released by StasSA on 3 June, comes as no surprise, as it merely confirms several months of muted high-frequency economic data that pointed to this likely outcome.

Prof Raymond Parsons, economist from the North-West University (NWU) Business School, says although adverse global developments earlier this year have also played a role, the weaker economic data was already apparent before then.

“For example, the ABSA Purchasing Managers’ Index for May, although showing some recent signs of business activity and demand improvement, has remained in contractionary territory for seven consecutive months. The key manufacturing sector is likely to continue to be a lagging one for now. This reality was already recently also presaged by several reduced growth forecasts for 2025, including by the National Treasury (1,9% to 1,4%) and the South African Reserve Bank (SARB) (1,7% to 1,2%).”

Prof Parsons explains that if present trends persist, the growth outlook for this year now seems likely to be only about 1%, possibly rising to about 1,5% in 2026.

He says it is clear that the incipient economic recovery in South Africa is at present struggling to gain momentum and needs maximum support to strengthen the business cycle upturn.

“The latest growth figures therefore again inject renewed urgency into the need to pivot South Africa’s growth strategy in ways that make better growth prospects possible. Gross fixed capital formation was also negative. The poor performance of fixed capital investment as a key driver of growth raises a notable red flag, as capital investment is the kingpin of the growth rate.”

According to Prof Parsons, it also emphasises the importance of speeding up the large-scale infrastructural spending to which official policy is already committed. “Accelerated structural reforms remain the best pathway to the overall 3% growth target of the Government of National Unity in the medium term, as well as to coping with external headwinds,” he

Submitted on Wed, 06/04/2025 - 08:46