Economists cautiously optimistic as SA enters 2026 on firmer growth footing

Economists remain cautiously optimistic about South Africa’s economic prospects in 2026, pointing to improving fundamentals, easing inflation and interest rates, and a gradual recovery in confidence following stronger-than-expected growth in 2025.

Professor Raymond Parsons of the North West University Business School said the economy ended 2025 in a notably stronger position than a year earlier, supported by several positive developments that could mark a turning point in the business cycle.

“In the past few months, a number of positive developments have created what could be a turning point in the business cycle. Based on the latest data available, the economy enters 2026 on a ‘note of cautious optimism’ about the outlook for next year,” he said.

Parsons said South Africa had been in a recovery phase during 2025, with a combination of favourable factors laying the groundwork for more durable growth. He noted that the economy recorded its fourth consecutive quarterly increase in activity in the third quarter of 2025, albeit from a low base.

“The GDP growth forecast for next year is now about 1.5%; inflation is projected to be close to the 3% inflation target; and interest rates are expected to decline further. Energy and logistical constraints are being gradually eased.”

Johann Els, chief economist at PSG Financial Services, said South Africa’s outlook remains closely tied to global conditions, particularly developments in the US economy and financial markets.

“The US also impacts heavily on South Africa in terms of the impact through US interest rate moves and the dollar that impacts on the rand exchange rate. For the US, I expect somewhat weaker growth in 2026 than in 2025, from around 2% growth in 2025 to 1.4% in 2026.”

Els added that there is a smaller probability of a recession in the US, but there's also a probability of significant demand boost that could accelerate growth. 

He said several factors supported South Africa’s improved performance in the second half of 2025, including lower inflation, easing interest rates, a stable to stronger rand, rising consumer spending, improved confidence, and renewed investor interest following the country’s exit from grey listing and recent ratings upgrades.

“So, more stability in terms of politics. Generally, an uptick in confidence combined with stronger consumer spending thanks to lower inflation and lower interest rates, all of those conditions will likely continue into 2026.”

Els said economic growth in 2025 surprised most analysts, with expectations at the start of the year well below 1%. Growth is now expected to come in closer to 1.4%, with further improvement anticipated.

“For 2026, I expect 1.7 percent growth, a slight uptick from the expected 1.4 percent in 2025, and 2027 perhaps a further uptick to slightly above 2 percent, so we are moving in the right direction.”

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pendent economist Ulrich Joubert also struck a cautiously balanced tone, highlighting both supportive and risk factors for 2026.

“If you look at the positive factors, politics, I think that if we look at the Government of National Unity (GNU), then it's fixed. There will be some aspects where the parties differ about, and where they have some different views about, etc. But overall, one can say it's still operating. It's still working. It's still there, and hopefully it continues, giving us some political stability,” he said.

Joubert added that lower domestic and global interest rates should support the economy, alongside a more favourable international environment.

“Overall, I think, yes, an easier international environment, also in terms of the positive credit rating that we've seen from S&P, Moody's, and perhaps that indicates to us that we could see further improvements in our credit rating, which should also assist us in borrowing at lower interest rates overseas.”

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