Several positive developments have lifted investor sentiment in the domestic economy in recent months.

These include South Africa’s removal from the Financial Action Task Force’s (FATF) grey list, an improved fiscal outlook presented in the 2025 Medium Term Budget Policy Statement (MTBPS), the announcement of a new 3% inflation target and an upgrade of South Africa’s foreign currency sovereign credit rating by S&P Global Ratings – the first upgrade in two decades. In addition, easing global trade tensions and higher commodity prices, especially for gold and platinum group metals (PGMs), have supported the exchange value of the rand, while the continued rally in domestic share and bond prices has contributed to positive wealth effects.

Economic activity in South Africa continued to expand in the third quarter of 2025, although the growth rate in real gross domestic product (GDP) slowed to 0.5% from a revised 0.9% in the second quarter. The moderation reflected slower growth across the primary and tertiary sectors, while the secondary sector experienced a slight contraction.

Growth in real gross value added (GVA) by the primary sector was driven by sustained increases in both agriculture and mining, albeit at a slower pace. Agricultural output was supported by higher yields in field crops and horticultural and animal products, despite ongoing challenges such as animal disease outbreaks and rising input costs. Favourable rainfall and better crop yields boosted the projected commercial maize crop to 16.44 million tons for the 2024/25 season – nearly 28% higher than the previous season, well above domestic demand and supporting export potential. The increase in mining output was led by PGMs, manganese ore, coal and chromium ore, while iron ore and diamond production declined. Mining production benefitted from stronger external demand for certain commodities, improved logistics and higher commodity prices, particularly for PGMs.

The secondary sector’s real GVA was virtually unchanged in the third quarter of 2025, as the decline in electricity, gas and water supply offset marginal growth in manufacturing and construction output. The slight increase in manufacturing output was largely driven by increased production of food and beverages, furniture and other manufacturing products, and motor vehicles, parts and accessories. Activity was constrained by weak demand, persistent logistical challenges and uncertainty surrounding the United States (US) trade policy, as reflected in lower capacity utilisation. The contraction in real output of the sector supplying electricity, gas and water was largely due to reduced electricity production and consumption in the third quarter, reflecting reduced electricity generation from Eskom, likely due to subdued demand from other industries.

Tertiary sector output expanded by 0.5% in the third quarter of 2025, with all four subsectors making positive contributions. The commerce sector’s real GVA rose further, supported by increased wholesale, retail and motor trade as well as tourist accommodation activity. The expansion in transport, storage and communication services was aided by the continued recovery in passenger rail journeys and increased activity in air transport and communication services. Increased real estate and other business services activity bolstered the real GVA of the finance, insurance, real estate and business services sector, with real estate benefitting from successive cuts in the prime lending rate since the third quarter of 2024.

Growth in real gross domestic expenditure moderated from 1.3% in the second quarter of 2025 to 0.9% in the third quarter, reflecting slower growth in both household and government consumption expenditure. However, real gross fixed capital formation returned to growth in the third quarter, alongside further accumulation of real inventory holdings. Real final consumption expenditure by households made the largest contribution to real GDP growth in the third quarter of 2025, while real net exports detracted from overall economic growth as import volumes increased more quickly than export volumes.

Growth in real final consumption expenditure by households slowed slightly to 0.7% in the third quarter of 2025, in line with the slower growth in their real disposable income. Spending on durable goods rose sharply, supported by the stable exchange value of the rand, subdued consumer price inflation for durable goods and lower interest rates.

The ratio of household debt to disposable income edged lower to 61.6% in the third quarter of 2025 from 62.1% in the previous quarter, as household debt increased at a slightly slower pace than nominal disposable income. Households’ cost of servicing debt relative to disposable income fell to 8.5% from 8.7% over this period.

Households’ net worth continued to improve in the third quarter of 2025, as the market value of their total assets increased more rapidly than their total liabilities. The rise in assets was largely due to a notable increase in share prices, as both domestic and global equity prices rallied, with the FTSE/JSE All-Share Index reaching new all-time highs after surging by 11.9% in the third quarter. The value of housing stock also rose further as residential property prices continued to increase.

Although real gross fixed capital formation rebounded in the third quarter of 2025, its average level in the first three quarters of the year was still 2.7% lower than in the same period of 2024. The recovery in the third quarter largely reflected higher capital investment from the public sector, while capital outlays by private business enterprises increased only slightly. By asset type, transport equipment and computer software made the largest contributions to growth in fixed investment over this period.

Total household-surveyed employment increased further by 248 000 from the second to the third quarter of 2025, with job gains recorded across all three main sectors. Informal sector employment increased significantly, partly due to improved coverage after Statistics South Africa implemented methodological changes to its Quarterly Labour Force Survey to align with international best practice. Nevertheless, the year-on-year growth in total employment moderated from 0.9% in the second quarter to 0.6% in the third quarter of 2025.

South Africa’s total labour force declined to 25.1 million people in the third quarter of 2025, as the decrease in the number of the officially unemployed outweighed the increase in employed people. This lowered the official unemployment rate from 33.2% in the second quarter to 31.9% in the third, with the youth unemployment rate also coming down.

After three consecutive quarters of moderation, growth in formal non-agricultural nominal remuneration per worker accelerated to 5.1% in the second quarter of 2025. This was mainly due to a notable quickening in the public sector, while growth in private sector remuneration per worker slowed further. Similarly, real wage growth per worker rose to 3.1% in the second quarter, as faster nominal remuneration growth coincided with a moderation in consumer price inflation.

Growth in labour productivity in the formal non-agricultural sector accelerated to 3.0% in the second quarter of 2025, as year-on-year growth in non-agricultural output quickened and employment growth slowed. Conversely, growth in nominal unit labour cost in the formal non-agricultural sector eased further to 2.0%, as year-on-year growth in total remuneration slowed while output growth accelerated. In addition, growth in economy-wide nominal unit labour cost slowed for a third successive quarter to 1.6% in the third quarter of 2025, as growth in employee compensation moderated further while growth in total output accelerated. The downward trend in both measures of nominal unit labour cost over the past two years suggests limited inflationary pressure from the labour market.

Domestic inflationary pressures have increased somewhat in recent months, reflecting a gradual reversal of the earlier disinflationary trend, primarily due to a slower pace of decline in fuel prices and higher food prices. Headline consumer price inflation rose gradually from a low of 2.7% in March 2025 to 3.6% in October, as both goods and services price inflation edged up. After 13 months of deflation, consumer fuel prices increased year on year in September and October 2025, mostly due to base effects. Consumer food price inflation trended higher through most of 2025, peaking at 5.5% in July before easing to 3.9% in October, mainly due to a sharp slowdown in vegetable price inflation. In contrast, meat price inflation remained elevated at 11.4% in October, largely driven by high beef prices as supply shortages related to foot-and-mouth disease persisted.

Most measures of underlying inflation have also increased slightly in recent months, largely due to a modest rise in services price inflation. Core inflation edged up from 2.9% in June 2025 – the lowest rate since March 2021 – to 3.1% in October. Encouragingly, surveyed inflation expectations came down further in the fourth quarter of 2025, likely in response to the lowering of South Africa’s inflation target to 3.0%. On average, the inflation expectations of all surveyed groups fell below 4.0% across the entire forecast horizon.

South Africa’s trade surplus narrowed further in the third quarter of 2025 as the value of merchandise imports grew faster than that of total goods exports. Exports were suppressed by a notable decline in the value of gold exports due to a lower physical quantity of gold exported. Despite a further significant rise in the US dollar price of gold in the third quarter, the average realised rand price of gold increased only marginally due to the rand appreciating against the US dollar over this period.

The higher value of merchandise exports in the third quarter of 2025 was largely due to increased exports of mining and agricultural products, while manufacturing exports declined. Mining exports were supported by higher export values of mineral products and PGMs, driven by a sharp increase in PGM prices. The notable rise in citrus exports lifted the value of agricultural exports. Manufacturing exports were weighed down by reduced exports of vehicles and transport equipment, textiles and related articles as well as machinery and electrical equipment.

Merchandise imports rose because of higher mining and manufacturing imports in the third quarter of 2025. Manufacturing imports picked up mainly due to increased imports of chemical products, textiles and related articles as well as machinery and electrical equipment. Mining imports increased largely because of higher imports of mineral products, boosted by increased importation of refined petroleum products – particularly distillate fuel and petrol – and crude oil.

The deficit on the services, income and current transfer account decreased in the third quarter of 2025 due to a significantly smaller deficit on the income account, as higher dividend receipts and lower dividend payments resulted in net dividend receipts for the first time in two years. In contrast, the deficits on the services and current transfer accounts widened somewhat over this period. Overall, the deficit on the current account of the balance of payments narrowed from 1.0% of GDP in the second quarter of 2025 to 0.7% of GDP in the third quarter.

The financial account of the balance of payments switched to a significant net inflow of capital of R67.4 billion in the third quarter of 2025, as direct investment, portfolio investment and reserve assets recorded net inflows. Portfolio investment liabilities registered a notable inflow in the third quarter of 2025 as non-residents continued to purchase domestic debt securities.

South Africa’s total external debt rose from US$176.5 billion at the end of March 2025 to US$180.2 billion at the end of June, mainly due to a rise in rand-denominated debt. This was driven by non-resident net purchases of bonds in the domestic capital market and the appreciation of the rand against the US dollar during this period.

South Africa’s positive net international investment position grew further to R2 475 billion at the end of June 2025, as the market value of foreign assets increased more than that of foreign liabilities. The rise in foreign assets was mainly attributed to higher direct and portfolio investment assets resulting from valuation effects due to a notable increase in global share prices.

The nominal effective exchange rate (NEER) of the rand increased by 3.2% in the third quarter of 2025, mainly due to a weaker US dollar and higher commodity prices, especially gold and PGMs. The weaker US dollar reflected growing expectations that the US Federal Reserve would lower interest rates amid concerns about slowing US economic growth. While global investor sentiment was dampened by ongoing trade policy uncertainty, it had little impact on the exchange value of the rand. The NEER continued to rise through November 2025, supported by the continued surge in the gold price. Several positive domestic developments also supported the rand since mid-2025, including faster real GDP growth in the second quarter, South Africa’s exit from the FATF grey list in October and the improved fiscal
outlook presented in the 2025 MTBPS, which also formally announced the new inflation target of 3.0%.

These developments, together with stable local consumer price inflation and reductions in the repurchase rate, contributed to lower domestic bond yields. The yield on 10-year South African rand-denominated government bonds fell considerably from a high of 10.99% on
7 April 2025 to 8.65% on 28 November. This decline also led to a sharp drop in break-even inflation rates, likely in response to the South African Reserve Bank (SARB) Monetary Policy Committee’s (MPC) July 2025 announcement expressing a preference for anchoring inflation at 3.0% and the subsequent introduction of the new inflation target in the 2025 MTBPS.

Growth in the broadly defined money supply (M3) accelerated gradually to 7.5% in October 2025, reflecting faster growth in corporate sector deposits, particularly among financial companies, while household deposit growth slowed slightly. Year-on-year growth in credit extension accelerated from 3.9% in February 2025 to 7.2% in October, driven by strong corporate sector demand, while household credit growth remained subdued.

The preliminary non-financial public sector borrowing requirement decreased by R53.7 billion year on year to R157.9 billion in the first six months (April–September 2025) of fiscal 2025/26. This reflected a significantly lower cash deficit for national government and a switch from a cash deficit to a cash surplus by non-financial public enterprises and corporations. Higher revenue collections across most tax categories boosted national government’s cash receipts from operating activities.

National government’s cash book deficit narrowed by R25.0 billion to R231.0 billion in the first half of fiscal 2025/26 compared to the same period a year earlier, as revenue increased faster than expenditure. The primary deficit also narrowed over this period. However, the net borrowing requirement increased notably over the same period, largely because the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) settlement of R100 billion reduced the borrowing requirement in the previous fiscal year. As a share of GDP, national government’s total gross loan debt increased to 78.9% as at 30 September 2025 from 74.9% a year earlier.

The 2025 MTBPS reaffirmed government’s commitment to achieving its fiscal targets. Economic growth is expected to improve over the medium term as investment increases, driven by government plans to boost infrastructure spending and advance key structural reforms. The consolidated government budget deficit as a percentage of GDP is projected to decrease from 4.7% in fiscal 2025/26 to 2.9% in fiscal 2028/29. This largely reflects a sustained increase in the projected primary surplus, which is also expected to stabilise national government’s debt-to-GDP ratio at 77.9% in fiscal 2025/26.