Finance Minister Enoch Godongwana has stated that lower inflation and interest rates were some of the factors that have a potential to drive the country’s economic growth over the next three years.
Godongwana’s assertion comes as the Reserve Bank’s Monetary Policy Committee (MPC) is scheduled to announce an interest rate decision next week Thursday. In the previous meeting, the MPC left the interest rates unchanged owing to the trade war introduced by US President Donald Trump.
Interest rates, power supply
“…Lower inflation and interest rates, along with two-pot retirement withdrawals, may boost domestic demand over the medium term. The continuation of more stable power supply may also lift confidence and growth,” said Godongwana.
The National Treasury in the 2025/2026 Budget review document, which was released on Wednesday, revealed that it has revised the 2025 economic growth downwards to 1.4%.
Godongwana bemoaned that global risks have become more pronounced in recent months, with rising financial market volatility and weaker growth prospects.
He noted that the substantial GDP growth downward revision to 1.4% comes after the National Treasury projected in March that the gross domestic product will grow by 1.9% in 2025.
In the 2025/2025 Budget Review document, treasury further revised the economic growth for 2026 to 1.6% from 1.7% and for 2027 to 1.8% from 1.9%.
International environment
The projected weak economic growth comes amid volatile international environment resulting from trade wars and policy uncertainty initiated by US President Donald Trump.
“Rapid intensification of trade tensions and elevated policy uncertainty are weighing on the global outlook. In recent months, the announcement of large tariffs by the US, followed by a partial/temporary suspension of these measures, has triggered severe volatility in global markets, trade and growth projections…
“Global trade growth is projected to slow to 1.7% in 2025, a downward revision of 1.5 percentage points compared with projections made in January of this year.
“This change is primarily due to the impact of tariffs and the fading influence of cyclical drivers that supported goods trade following the Covid-19 pandemic and the initial impact of the Ukraine war,” said Godongwana.
Geopolitical tensions
He warned that geopolitical tensions and reconfiguration of supply chains remain a risk to foreign investment and South African economy’s growth prospects.
“As global growth has faltered, South Africa’s economic outlook has also weakened, with GDP expected to grow by only 1.4% in 2025.
“Global risk and economic weakness reinforce the need for us to put our fiscal house in order.”
He added the country needs to find ways to grow the economy.
Alternative scenarios to the current forecast
“South Africa needs to raise economic growth and stabilise the public finances in order to compete globally, create jobs and deliver sustainable public services,” he said.
Godongwana revealed that in light of recent international developments, the National Treasury has modelled alternative scenarios to the current forecast.
“It assumes an escalation of US-China trade tensions and US tariffs rising above 10% for some other countries. He said, according to the model, if South Africa is hit hard by weaker demand, falling commodity prices and financial volatility, risk premiums, borrowing costs and capital outflows all rise, limiting fiscal space.
“GDP is projected to be 0.3 and 0.4 percentage points below the baseline in 2025 and 2026 respectively. Near-term inflation is slightly lower due to subdued oil prices,” Godongwana referenced the scenario model.
