Is South Africa’s economy on a path to steady growth, despite the headwinds?

News of South Africa’s modest GDP growth figure of 0.1% in the first quarter of 2025 has mostly been met with disdain and concern over the country’s economic future.

However, some economists remain optimistic that the local economy is proving resilient in the face of trying circumstances, particularly since many had predicted a contraction in the first quarter.

Frederick Mitchell, chief economist at Aluma Capital, says South Africa is cautiously navigating its way through a complex landscape marked by rising international tensions, diplomatic disputes and external economic shocks.Chief Economist at Aluma Capital, says South Africa is cautiously navigating its way through a complex landscape marked by rising international tensions, diplomatic disputes,

“South Africa’s economy is demonstrating resilience through cautious monetary policy and structural adjustments,” Mitchell said.

“While global uncertainties persist, the country’s prudent fiscal stance, combined with strategic reforms and diplomatic engagement, positions it to steady itself on a path toward sustainable growth.” 

However, he cautioned that staying the course with growth-oriented economic policies and realistic expectations would be key to lifting millions out of poverty and building long-term wealth for the country going forward. 

The key challenge will be to sustain this fragile recovery while turning modest gains into meaningful, inclusive prosperity.

“Sustainable growth, however, depends on clear policy direction, prudent fiscal management, and fostering investor confidence,” Mitchell added.

“Improving trade accessibility, combined with targeted reforms, will help reduce unemployment, which remains a pressing challenge.” 

The first quarter’s almost non-existent growth was primarily driven by agriculture, which expanded by 15.8% quarterly, as well as finance. However, sectors such as mining, manufacturing and construction continue to face setbacks, with declines ranging from 2.4% to 4.2%.

South Africa’s potential loss of the African Growth and Opportunity Act (AGOA), would curtail South Africa’s exports to the US, particularly in sectors such as manufacturing, precious metals and minerals.

Green shoots in local market

However, on the domestic front there are green shoots appearing. Vehicle sales in May 2025 were up by 22% year-on-year, with the passenger car sector showing 30% growth.

"The automotive sector finds itself once again at the coalface of global economic shifts," said naamsa CEO Mikel Mabasa.

"The SARB's latest decision to lower interest rates is both timely and commendable. It directly supports consumer affordability and boosts production competitiveness at a time when global uncertainty is weighing heavily on our export markets. While the new tariff measures remain a concern, our industry has proven its resilience time and time again."

Waldo Krugell, economics professor at North-West University, remains concerned about the contraction of investment spending in South Africa, and suspects that the loss of Government of National Unity (GNU) reform may be playing a role here.

“The fact that agriculture, which is a small part of GDP, is again such a swing factor, though to the positive side, shows that there is very little growth happening elsewhere,” Krugell said 

“On the expenditure side it is households driving the little bit of growth that we see. They were spending on transport (those Q1 new vehicle sales showing up), food and beverages, restaurants and hotels, and health,” he added.

However, despite turbulent global conditions and internal headwinds, South Africa’s economy demonstrated surprising resilience in 2025, Aluma’s Frederick Mitchell concluded.

“While external risks - like US tariffs and geopolitical tensions - cannot be ignored, South Africa’s focus on low inflation, stable currency, and infrastructure investment provides a solid foundation to weather storms and pursue growth.”

IOL