Policy uncertainty eases sharply, signalling possible turning point for SA’s economy

South Africa may be heading into 2026 with renewed momentum after the North-West University (NWU) Business School’s Policy Uncertainty Index (PUI) showed a significant improvement in the final quarter of 2025.

The index, released on Tuesday, eased to 64.9 from its record high of 81.0 in the third quarter, indicating a notable reduction in policy-related risks even though uncertainty remains above the neutral baseline of 50.

Professor Raymond Parsons, economist at the NWU Business School, said the latest results suggest that “positive factors over the past three months have outweighed the negative ones,” allowing the economy to enter 2026 “on a note of cautious optimism.”

Parsons emphasised that the global environment remains complex but generally supportive of growth.

The International Monetary Fund (IMF) expects worldwide economic expansion of 3.2% in 2026, although heightened uncertainty is increasingly seen as a permanent feature of the global landscape.

The United States is expected to post growth close to its potential of 2% next year, but Parsons cautioned that risks remain, including concerns about a potential AI-driven stock market bubble.

Sub-Saharan Africa, meanwhile, has been described by both the IMF and World Bank as “resilient,” with growth projected to exceed 4% in 2026 despite headwinds such as trade disruptions, high external debt and a widening jobs deficit.

In South Africa, the economy recorded its fourth consecutive quarter of expansion in 3Q 2025, although the rebound is from a low base. GDP growth forecasts for 2026 range between 1.1% and 1.6%, averaging around 1.4%.

Unemployment dipped slightly in the third quarter, with the latest Stats SA survey pointing to modest labour market improvements.

Parsons said a cluster of positive developments contributed to the improved PUI reading.

These include a well-received Medium-Term Budget Policy Statement (MTBPS), South Africa’s removal from the Financial Action Task Force (FATF) grey list, a move toward a lower 3% inflation target, and Standard & Poor’s upgrading South Africa’s investment rating for the first time in nearly two decades. The Monetary Policy Committee’s decision to cut interest rates by 25 basis points, along with South Africa’s successful hosting of the G20 Summit, also supported confidence.

However, several downside risks continue to drag on sentiment.

Parsons highlighted persistently high crime levels and the threat posed by new US tariffs on South African exports in the absence of a refreshed bilateral trade agreement. These pressures add to the economy’s structural constraints and raise the stakes for policy execution.

Looking ahead, Parsons said the next phase of South Africa’s recovery hinges on whether enough firms believe conditions are improving sufficiently to justify new investment commitments.

“The challenge remains for South Africa to ensure the robust implementation of half-formed growth-friendly policies and projects that will further reduce policy uncertainty. Elevated policy uncertainty is reversible. South Africa’s economic steersmanship must continue to keep policy firmly on track, so that next year the tailwinds will overcome any headwinds,” Parsons said.

“The economy enters 2026 on a note of cautious optimism. It also demonstrates that elevated policy uncertainty is reversible if the right decisions are taken and implemented. The basic message of the recent 2025 MTBPS was that accelerated structural reforms remain the most effective pathway to much higher, job-rich growth.”

Parsons said that the challenge therefore remains the robust implementation of half-formed, growth-friendly policies to further reduce policy uncertainty.

“Implementation is still the key - ensuring that reform commitments translate into tangible improvements in confidence, stability, investment, jobs, and service delivery. South Africa’s economic steersmanship must therefore continue to keep the economy on track, so that over the next year the tailwinds will overcome any headwinds.”

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