Absa maintains growth forecast amidst global economic uncertainty

 Absa Group has signalled a steady outlook for South Africa's growth despite a rocky start to the year.

In its latest Quarterly Perspectives report for the third quarter of 2025 released on Thursday, Absa said available data suggested a more encouraging second quarter, with an anticipated gross domestic product (GDP) growth of 0.3% quarter-on-quarter.

Absa is forecasting 2025 GDP growth of 0.9%, just 0.1 percentage point lower from its last Quarterly Perspectives in May. Assuming no further external shocks, it expects real GDP growth to improve to 1.6% in 2026 and average 2.1% in 2027-29.

Miyelani Maluleke, senior economist and head of South Africa Macroeconomics Research at Absa Group, said that the external environment was showing some resilience, but uncertainty was high.

“Economic activity has looked more resilient than we expected at the time of our last Quarterly Perspectives, with the IMF having since revised its global economic growth forecasts slightly higher,"Maluleke said.

"Export commodity price moves have also largely favoured SA, delivering supportive terms-of-trade. Ongoing trade policy uncertainty is a big challenge. For SA, more difficult relations with the US on trade and diplomacy remain a key risk.”

Maluleke added that the South African Reserve Bank’s (Sarb) shift to a 3% inflation anchor was an important macroeconomic policy reform.

“The apparent lack of harmony between the central bank and the finance minister on the target creates transition risks. While we believe that the Monetary Policy Committee’s (MPC) decision to target 3% inflation can help to guide inflation expectations lower in the long run, we fear that a lack of wider buy-in from the government may affect the perceived credibility of the new target. This could slow the adjustment of inflation expectations towards the Sarb’s preferred anchor,” he said.

Maluleke added that the headline consumer price index (CPI) inflation could drift higher in the coming months.

“We believe that favourable base effects on fuel and parts of the food basket will unwind, driving up headline CPI inflation. Meanwhile, sharp hikes in electricity and water tariffs will add upward pressure, directly and through second-order effects.”

Absa expects CPI inflation to rise to just above 4% by year-end, but it has lowered its forecast for 2026 to 3.9% and for 2027 to 3.5% as it believes the Sarb will be able to shift inflation expectations, albeit slowly.

Maluleke added that Sarb rate cuts seem unlikely in the near future.

“As we forecast headline CPI inflation to approach 4% towards year-end and into early 2026, the case for rate cuts would be hard, especially as the MPC looks to solidify its credentials around the 3% anchor. We believe the scope to cut will emerge only from 2027," he said.

"As a baseline, we have pencilled in 50bp of easing in 2027 and a further 50bp in 2028, taking the repo rate to 6.00%.”

Maluleke said that in the long run, consumers should benefit from lower inflation and borrowing costs. “The transition to a lower inflation anchor should aid in sustained improvements in real household incomes. For the remainder of the year and into next year, however, an expected rise in inflation, stagnant employment and credit strain present headwinds to the consumer.”

While the momentum for growth-oriented reforms is observed, Maluleke stressed that progress is essential.

Recent government updates on Phase II of Operation Vulindlela revealed encouraging advancements, with over half of the reforms in this phase deemed on track—pointing towards a path of improved ease of doing business, renewed confidence, and enhanced investment prospects.

Maluleke said Absa will closely monitor key factors, including South Africa’s trade and diplomatic relationships, reform progress, inflation trajectories, the Sarb's responses to economic challenges, public finance health leading up to the Medium-Term Budget Policy Statement (MTBPS) in November, and dynamics within the governing coalition.

The global trade environment, particularly in relation to US policy shifts, remains a significant wildcard affecting the broader economic climate.

“While the current US administration seems determined to push ahead with reshaping the terms of exchange with its trading partners, its trade policy has continued to shift around since ‘Liberation Day’ and appears far from being settled,” he said.

BUSINESS REPORT