ohannesburg, South Africa – May 29, 2025 – In a significant and sobering adjustment that underscores the growing economic headwinds facing South Africa, Absa Corporate and Investment Banking (CIB) has drastically slashed its 2025 Gross Domestic Product (GDP) growth forecast for the country by half, from an earlier 2.1% to a mere 1.0%. This downward revision, presented in Absa’s latest South Africa Q2 2025 Quarterly Perspectives report, signals a less optimistic outlook for the nation’s economic recovery and has sent ripples through the financial community.

The initial forecast of 2.1% growth for 2025 had been buoyed by expectations of improved domestic infrastructure, healthier household finances, higher business confidence, and a recovery from drought conditions. However, Miyelani Maluleke, a senior economist at Absa CIB, explained that while some of these factors may still offer support, others have “deteriorated,” necessitating the sharp recalibration.

The Reasons Behind the Downgrade:

Absa CIB’s revised outlook is primarily driven by a confluence of escalating global uncertainties and persistent domestic challenges:

1. Heightened Global Uncertainties: The most significant factor is a worsening global economic environment, particularly marked by escalating trade tensions. The imposition of new tariffs, such as the US’s 10% universal tariff on exports and higher reciprocal tariffs on 60 countries (including South Africa), starting April 2, is set to dampen global growth. As a small, open economy, South Africa’s prospects are intrinsically linked to the health of the world economy and the progression of global trade negotiations. Less favourable trade arrangements with key partners like the US will directly impact various South African sectors, while weaker global growth will generally weigh on broader export performance.

2. Domestic Political and Policy Instability:

   • Policy disagreements within the Government of National Unity (GNU): The formation of the GNU, while initially fostering some optimism, has shown signs of internal policy disagreements. These disagreements, alongside a delayed 2025 Budget process, have raised concerns about the coalition’s stability and its ability to implement coherent, pro-growth policies.
   • Delayed 2025 Budget: The repeated adjustments and delays in the 2025 Budget have contributed to uncertainty, making it harder for businesses to plan and invest.

3. Persistent Electricity Challenges: Despite periods of reduced load shedding, Absa CIB notes increased plant breakdowns at Eskom and moderate load shedding, highlighting the ongoing structural challenges in electricity supply. These disruptions continue to hamper industrial output, business operations, and investor confidence.

Implications of the Revised Forecast:

A 1% growth forecast for 2025 is a far cry from the growth rates needed to address South Africa’s pressing socio-economic issues, particularly the alarmingly high unemployment rate (32.9% in Q1 2025) and pervasive poverty.

• Job Creation Will Remain Stagnant: Such sluggish growth will likely mean minimal, if any, net job creation, further exacerbating the unemployment crisis.
• Fiscal Pressure Intensifies: Lower economic growth directly translates to lower tax revenues for the National Treasury, putting even greater pressure on the fiscus and potentially widening the budget deficit. This could further complicate efforts to stabilize South Africa’s already high debt-to-GDP ratio.
• Reduced Investment: Both local and foreign investors are less likely to commit capital to an economy with such limited growth prospects, creating a vicious cycle of underinvestment.
• Consumer Strain Continues: While Absa CIB does project consumer spending to grow by 1.7% in 2025, supported by low inflation and anticipated interest rate cuts, the overall weak economic environment means that household income growth will remain constrained.

A Glimmer of Hope Amidst the Gloom:

Despite the significant downgrade, there are a few factors that offer some support:

• Low Inflation: South Africa’s headline CPI inflation has remained relatively low, falling to 2.7% in March and projected to remain below the SARB’s 4.5% target midpoint until Q2 2026. This has created some room for the SARB to potentially cut interest rates, which Absa CIB anticipates (a 25-basis point reduction in May and another in July). Lower rates could ease debt service costs and support consumer spending.
• Ongoing Reforms: Progress continues in critical areas like logistics, electricity, and local government service delivery, with President Ramaphosa launching Phase II of Operation Vulindlela to deepen reforms. While slow, these efforts are crucial for long-term improvement.

The Road Ahead:

Absa CIB’s revised forecast serves as a stark reminder of the fragile state of South Africa’s economy. It underscores the urgent need for decisive action on structural reforms, stability within the GNU, and strategic responses to global trade dynamics. Without a significant shift in the underlying drivers of growth, South Africa faces a challenging period of continued economic sluggishness, making the pathway to prosperity even steeper.