The World Bank has revised its economic growth forecast for South Africa, citing a sustained recovery in the nation's energy and logistics sectors. Th
The World Bank has revised its economic growth forecast for South Africa, citing a sustained recovery in the nation’s energy and logistics sectors. The updated projection estimates a 1.8% increase in gross domestic product (GDP) for 2025, up from the previously anticipated 1.3%. Furthermore, growth is expected to reach 2% by 2027.
This modest recovery is attributed to improved infrastructure services and a relatively favorable external environment. The World Bank also anticipates that inflation will remain under control during this period, allowing for a further easing of monetary policy. Such conditions are expected to encourage banks to extend more credit to businesses and households, thereby stimulating economic growth.
Growth rates
Despite these positive developments, the World Bank warns that the projected growth rates are insufficient to significantly reduce South Africa’s high poverty and unemployment levels. The bank notes that a 1% increase in GDP typically generates only 30,000 to 50,000 jobs in the country, due to the low employment elasticity of GDP growth. Consequently, poverty and unemployment rates are projected to remain high, above 60% and 30% respectively, throughout the forecast period.
To make a substantial impact on these challenges, the bank suggests that an annual growth rate of 5% to 6% would be necessary. However, achieving such a pace in the short term is deemed difficult due to ongoing structural constraints that impede private sector development and the need for fiscal consolidation.
South Africa faces additional hurdles, including a fiscal deficit that needs to be reduced from 6% to 4.6% of GDP by 2027 to ensure a sustainable public debt trajectory. This task is complicated by various risks, such as potential global trade conflicts, political instability, high crime rates, and persistent social tensions. The fiscal consolidation process may also encounter opposition from labor unions demanding higher wages and state-owned enterprises, like Transnet, as well as subnational governments seeking financial bailouts.