S&P Global Ratings has indicated that South Africa must accelerate economic growth and implement credible fiscal consolidation to achieve its first credit rating upgrade in two decades. Currently rated at ‘BB-‘ with a positive outlook, the country remains below investment grade. Ravi Bhatia, S&P’s lead analyst for South Africa, emphasized that sustainable growth, fiscal discipline, and avoiding further bailouts for state-owned enterprises are critical for an upgrade.
The agency plans to decide within a year whether to upgrade the rating. Bhatia noted that external risks are minimal, with domestic fiscal and growth dynamics being the primary concerns. He also highlighted that the government’s efforts to stabilize debt and implement structural reforms are being closely monitored.
South Africa’s economy showed minimal growth in the first quarter of 2025, with a quarter-on-quarter increase of just 0.1%. This sluggish growth was primarily due to contractions in the mining and manufacturing sectors, which offset a robust 15% expansion in agriculture. The country has faced persistent challenges in stimulating economic momentum since the 2008-2009 global financial crisis, with annual growth averaging under 1% over the past ten years.
Despite improved business and consumer confidence following the formation of a coalition government last year, output levels have yet to show significant improvement. While the reported GDP growth slightly surpassed expectations of no change, analysts and officials expressed concern over the economy’s vulnerability to further decline. Additionally, Statistics South Africa revised fourth-quarter 2024 growth down to 0.4% from 0.6%. Year-on-year, first-quarter GDP grew by 0.8%, marginally above the 0.7% forecast.
Persistent structural issues, such as logistics bottlenecks, continue to hinder economic reform efforts. In response to the slowing recovery, analysts suggest that the central bank may consider further interest rate cuts. The central bank recently downgraded its 2025 growth forecast from 1.7% to 1.2%.
The South African Reserve Bank reduced its key interest rate by 25 basis points to 7.25%, with unanimous backing from its Monetary Policy Committee. This marks a significant policy shift as the SARB emphasizes a reduced inflation target, now favoring 3% over the current 4.5% midpoint of its 3%-6% range. The rate cut reflects subdued inflation, improved domestic economic conditions, and partial resolution of budget-related political disputes.
The SARB also revised down South Africa’s 2025 economic growth projection from 1.7% to 1.2%, and the inflation forecast for this year to 3.2% from 3.6%, citing a stronger rand and lower global oil prices. Although global risks persist—particularly stemming from U.S. trade policies—the SARB’s outlook has become less hawkish since March. Meanwhile, South Africa is in ongoing trade negotiations with the U.S. following President Ramaphosa’s visit to Washington.
The central bank presented detailed modeling supporting the benefits of a 3% inflation target, suggesting initial slower growth but improved long-term economic performance. Discussions on adjusting the official inflation target are well advanced and will require approval from the finance minister.
In May 2025, South Africa’s business activity experienced its strongest expansion in four years, as indicated by the S&P Global Purchasing Managers’ Index , which rose to 50.8 from 50.0 in April. This marks the first growth since November 2024, signaling a marginal improvement in the private sector’s overall health. Boosted by new projects and a rise in domestic demand, companies reported increased output, new orders, and inventory levels, with the output subindex hitting its highest point since May 2021.
While export orders continued to decline due to U.S. tariffs, improved supply chain conditions led to quicker delivery times and accelerated inventory buildup. Despite a slight reduction in staffing due to restructuring and unfilled positions, slower input price inflation enabled businesses to cut selling prices. Overall, sentiment remained positive, with future output expectations reaching a three-month high, driven by anticipated increased client demand and new product launches.
In the second quarter of 2025, South African business confidence declined to 40 points from 45 in the previous quarter, according to a survey by Rand Merchant Bank and the Bureau of Economic Research. The drop is attributed to international trade uncertainties, such as U.S. President Donald Trump’s “Liberation Day” tariffs, and persistent domestic logistical bottlenecks. The South African rand reached an all-time low in April amid trade tensions and concerns over stability under the country’s coalition government, though it began recovering after a 90-day tariff pause.
The central bank responded by cutting the repo rate by 25 basis points to 7.25%, aiming to support the economy amid lowered inflation and growth forecasts. Despite the rate cut offering some relief, experts warn that more substantial actions are needed to boost economic momentum. Economic sectors including retail, vehicle sales, construction, and manufacturing reported declining confidence, with wholesale trade being the only sector registering an improvement. Overall, business sentiment, while still above 2023 and 2024 levels, now sits slightly below the long-term average.
S&P Global has taken a more optimistic tone on South Africa’s economic prospects, revising its outlook for the country from stable to positive. However, despite the positive turn, South Africa’s sovereign rating remains at BB-, three notches below investment grade, or three levels into junk status – but the turn is in the right direction.
Delivering its review of the country’s prospects, S&P Global said that it expects South Africa’s GDP growth to increase to 1.4% over 2025 to 2027, higher than the 1.0% projected in 2024. This is largely thanks to load shedding being eased and all-but removed from the equation; however, logistic bottlenecks are still keeping economic activity constrained, it said.
S&P said that the government of national unity can make a marked difference though, especially if its planned acceleration of economic reforms can be delivered. Despite high gross government debt of about 76% of GDP, fiscal consolidation is ongoing and South Africa benefits from access to deep domestic markets and an actively traded currency.
The World Bank has updated South Africa’s economic growth forecast as substantial work has been done in the energy and logistics sector. The bank updated SA’s GDP projection for 2025 from 1.3% to 1.8% and said that it expects growth to accelerate to 2% by 2027. The World Bank, however, noted that SA will continue to struggle to keep up with reducing poverty and unemployment, despite the GDP growth.
Such recovery, albeit modest, will be driven by improved infrastructure services and a relatively favourable external environment. During this period, inflation is expected to remain under control, allowing a further easing of monetary policy that will encourage banks’ credits to businesses and households and, thus, stimulate economic growth.
The May 2024 general elections ushered in a coalition government comprising 11 political parties. This broad coalition, led by the Government of National Unity , has fostered an environment conducive to structural reforms and economic growth. The ratings agency highlights that since the coalition’s formation, South Africa has experienced improved debt yields and portfolio inflows, resulting in eased financing conditions and a stronger currency. These developments signify growing confidence in the country’s ability to address long-standing challenges such as fiscal deficits, high unemployment, and weak economic growth.
The GNU’s focus on structural reforms in key sectors, including energy, transport, and infrastructure, has been instrumental in this progress. These reforms aim to address systemic inefficiencies, particularly in state-owned enterprises such as Eskom and Transnet, which have historically hampered economic growth.
Despite concerns raised in the recent Medium Term Budget Policy Statement , which presented weaker fiscal projections than the February 2024 Budget Review, S&P remains optimistic about South Africa’s fiscal policy predictability. The agency commended the government’s efforts to achieve primary surpluses and fiscal consolidation, which are crucial for reducing public debt and restoring investor confidence.
