The buoyant performance of global and domestic financial markets over the past year was abruptly interrupted following the outbreak of the war in the Middle East on 28 February 2026.

The price of Brent crude oil surged and emerging market currencies, including the rand, depreciated notably against the United States (US) dollar. Share prices fell sharply and bond yields increased significantly on fears of higher inflation. However, the impact of the war has not yet become apparent in real economic activity.

In South Africa, economic activity increased for a fifth consecutive quarter in the fourth quarter of 2025, marking the longest continuous period of expansion since the six consecutive quarters of increase recorded up to the first quarter of 2018. Growth in real gross domestic product (GDP) picked up marginally from a revised 0.3% in the third quarter of 2025 to 0.4% in the fourth quarter as output growth accelerated in the tertiary sector, while activity contracted in the primary and secondary sectors. Annual output growth more than doubled from 0.5% in 2024 to 1.1% in 2025, supported by increased activity in the primary and tertiary sectors, while the real gross value added (GVA) by the secondary sector contracted for the fourth consecutive year. When excluding the agricultural sector, real economic growth slowed marginally from 0.8% in 2024 to 0.7% in 2025.

The real GVA by the primary sector contracted slightly in the fourth quarter of 2025 as mining output decreased and the growth in agricultural output slowed. Mining output was negatively impacted by lower production of coal, platinum group metals (PGMs), gold and diamonds. Coal production declined further due to persistent logistical constraints and lower domestic demand, while PGM production fell as the post-flood recovery – following disruptions at several domestic mining operations in the first half of 2025 – lost momentum. The increase in agricultural output was mainly driven by the higher production of field crops and horticultural products that benefited from La Niña-related rainfall, which enhanced soil moisture and supported bumper harvests. However, the agricultural sector continued to face challenges from ongoing logistical constraints and outbreaks of animal diseases.

The real GVA by the secondary sector decreased further in the fourth quarter of 2025 as output contracted in all three subsectors. Manufacturing output remained constrained by persistent deindustrialisation, weak investment, rising energy costs and subdued domestic demand, with production falling in 8 of the 10 manufacturing subsectors in the fourth quarter. The real output of the electricity, gas and water sector contracted further in the fourth quarter, reflecting weaker demand for national grid-based electricity generated by Eskom amid lower industrial activity and greater reliance on private generation. The real GVA by the construction sector contracted for the ninth successive year in 2025, weighed down by weak demand, low private sector investment and subdued public infrastructure investment.

The real output of the tertiary sector increased at a faster pace in the fourth quarter of 2025, driven by higher output in the commerce; personal services; general government; and finance, insurance, real estate and business services sectors. Activity in the commerce sector was supported by subdued consumer price inflation and positive wealth effects due to the significant rise in financial asset prices. Growth in the real GVA by the finance, insurance, real estate and business services sector accelerated notably, supported by increased activity in the monetary intermediation, insurance, real estate and business services subsectors.

Growth in real gross domestic expenditure (GDE) moderated slightly from 0.8% in the third quarter of 2025 to 0.7% in the fourth quarter as growth in real gross fixed capital formation slowed and real inventory holdings decreased. Real final consumption expenditure by households and general government increased at a faster pace in the fourth quarter. On an annual basis, real GDE reverted from a contraction of 0.6% in 2024 to an expansion of 2.1% in 2025, with real household consumption expenditure contributing the most to growth in real GDP, while gross fixed capital formation and net exports detracted from overall growth.

Growth in real final consumption expenditure by households accelerated to 1.2% in the fourth quarter of 2025, supported by rising real disposable income and improved consumer confidence. Spending on semi-durable goods and services increased at a faster pace in the fourth quarter, while growth in spending on durable and non-durable goods moderated.

In line with the continued increase in consumer spending, household debt increased further in the fourth quarter of 2025 as growth accelerated across most categories of credit extended to households. Consequently, household debt as a percentage of nominal disposable income edged higher from 61.5% in the third quarter of 2025 to 61.8% in the fourth quarter, while households’ cost of servicing debt relative to disposable income edged lower from 8.5% to 8.4% over the same period.

Households’ net wealth increased further in the fourth quarter of 2025 as the rise in the market value of total assets outpaced that in total liabilities, primarily due to the marked increase in share prices. The domestic share market performed exceptionally well in 2025, with the FTSE/JSE All-Share Index (Alsi) recording its best performance since 2005, surging by 37.7%. In US dollar terms, the Alsi rose by 55.3% in 2025, significantly outperforming its emerging and developed market peers.

Real gross fixed capital formation increased at a slightly slower pace in the fourth quarter of 2025, driven by higher fixed capital spending by public corporations and private business enterprises, while fixed investment by general government declined. Measured by asset type, real fixed investment in machinery and equipment, construction works as well as the other assets category increased in the fourth quarter, while investment in all other asset types decreased. On an annual basis, real investment spending contracted further by 2.2% in 2025, with the ratio of nominal gross fixed capital formation to nominal GDP falling further to 13.9%.

Total household-surveyed employment grew moderately by 44 000 in the fourth quarter of 2025, with job gains recorded primarily in the formal sector and, to a lesser extent, the household sector. By contrast, informal sector employment fell sharply. On a year-on-year basis, the rate of increase in total employment slowed from 0.6% in the third quarter of 2025 to 0.1% in the fourth quarter.

South Africa’s total labour force decreased further by 0.5% to 24.9 million in the fourth quarter of 2025 as the reduction in the number of officially unemployed persons outweighed the increase in the number of employed persons. As a result, the official unemployment rate decreased to 31.4% in the fourth quarter – the lowest rate since the third quarter of 2020.

Growth in formal non-agricultural nominal remuneration per worker moderated to 3.9% in the fourth quarter of 2025, marking the slowest rate of increase since the second quarter of 2023. Remuneration growth decelerated notably in the public sector, while growth in private sector remuneration per worker accelerated marginally. The average wage settlement rate in collective bargaining agreements decreased from 6.2% in 2024 to 5.8% in 2025, while the number of working days lost due to industrial action fell notably as wage negotiations were concluded without significant disruption in 2025.

Growth in labour productivity in the formal non-agricultural sector moderated to 1.3% in the third quarter of 2025, while growth in nominal unit labour cost decelerated further to 2.5%. Similarly, growth in economy-wide nominal unit labour cost slowed for a fourth successive quarter to 1.9% in the fourth quarter of 2025. The continued slowdown in both measures of nominal unit labour cost growth over the past two years suggests easing inflationary pressures from the labour market.

Global inflation slowed further in 2025 but remained above pre-pandemic levels, mainly due to lower international crude oil prices and relatively stable food price inflation. Similarly, domestic inflationary pressures eased in 2025, with annual average consumer price inflation slowing further from 4.4% in 2024 to 3.2% in 2025 – the lowest rate of inflation since 2004. Despite the annual moderation, headline consumer price inflation rose gradually to 3.5% in January 2026 as both services and goods price inflation accelerated slightly. Consumer price inflation then decelerated to the revised 3% inflation target in February 2026, with the slowdown in goods price inflation largely driven by the sharp drop in fuel prices, and the moderation in services price inflation mainly reflecting smaller increases in medical aid contributions compared to 2024.

Consumer food price inflation slowed somewhat in February 2026 as cereals prices deflated and meat price inflation eased slightly, although it remained elevated due to ongoing animal disease outbreaks. Consumer fuel prices decreased by 10.1% in February 2026 compared to a year earlier. However, the price of Brent crude oil surged to above US$100 per barrel in mid-March following the outbreak of the war in the Middle East, which is expected to exert significant upside pressure on domestic fuel prices in the coming months.

South Africa’s trade surplus widened significantly in the fourth quarter of 2025 as the value of merchandise and net gold exports increased, while the value of merchandise imports decreased. The terms of trade also improved further as the rand price of exported goods and services increased, while that of imports decreased. The value of net gold exports surged by 29.5% in the fourth quarter, driven by increases in both the realised rand price and the physical quantity of net gold exported. The continued increase in the gold price was influenced by factors such as a weaker US dollar, continued gold purchases by central banks and heightened safe-haven demand amid ongoing concerns about escalating geopolitical tensions.

The higher value of merchandise exports in the fourth quarter of 2025 was driven by increased mining exports, while the value of manufacturing and agricultural exports decreased. The higher mining exports largely reflected increased exports of PGMs; base metals and articles thereof; as well as pearls, precious and semi-precious stones, supported by higher prices and volumes.

The value of merchandise imports decreased in the fourth quarter of 2025, mainly due to lower mining and manufacturing imports, while agricultural imports increased. The decline in manufacturing imports was broad-based, while the decrease in mining imports was due to lower imports of mineral products as well as base metals and articles thereof. The value of imported mineral products fell notably due to lower imports of crude oil and refined petroleum products, especially diesel.

The deficit on the services, income and current transfer account narrowed further in the fourth quarter of 2025 due to a smaller shortfall on the income account, while the deficits on the services and current transfer accounts widened. This, together with the increase in the trade surplus, resulted in a switch in the balance on the current account of the balance of payments to a surplus of 0.6% of GDP in the fourth quarter of 2025 – the first surplus since the third quarter of 2023.

The net flow of capital on South Africa’s financial account of the balance of payments switched to an outflow of R48.3 billion in the fourth quarter of 2025 from an inflow of R67.4 billion in the third quarter. This shift was due to outflows in portfolio investment, financial derivatives, other investment and reserve assets, while direct investment recorded inflows.

South Africa’s total external debt increased further to US$193.0 billion at the end of September 2025 as rand-denominated external debt, measured in US dollars, increased significantly. This was primarily due to non-residents’ net purchases of bonds in the domestic capital market, an increase in the market value of these bonds, and the effect of the appreciation in the exchange value of the rand over this period.

South Africa’s positive net international investment position increased marginally to R2 488 billion at the end of September 2025 as the market value of foreign assets increased slightly more than that of foreign liabilities. The growth in foreign assets was mostly driven by an increase in direct and portfolio investment assets due to price valuation effects as major international share indices rose notably in the third quarter of 2025.

The nominal effective exchange rate (NEER) of the rand increased by 3.7% in the fourth quarter of 2025, driven by improved investor sentiment following significant progress on domestic reforms, including the formal adoption of the revised 3% inflation target and improved fiscal metrics. South Africa’s risk premium also decreased after the country was removed from the Financial Action Task Force’s (FATF) greylist and received a credit rating upgrade from S&P Global Ratings. The NEER continued to increase up to 27 February 2026 before decreasing by 4.1% from the end of February to 13 March. This drop was impacted by the outbreak of the war in the Middle East as global risk aversion and the sharp increase in crude oil prices negatively affected especially emerging market currencies against the US dollar.

Domestic bond yields fell significantly during most of 2025 and early 2026, supported by the stronger rand exchange rate, lower consumer price inflation, the announcement of the lower 3% inflation target, reductions in the South African Reserve Bank (SARB) policy rate, and net purchases of domestic bonds by non-residents. The yield on 10-year South African rand-denominated government bonds declined to 7.92% on 25 February 2026, marking the lowest rate since 7.87% was recorded on 21 May 2015. Subsequently, the 10-year bond yield increased abruptly to 8.94% on 13 March, along with the depreciation in the exchange value of the rand. Similarly, movements in the yield curve reflected these trends – by 25 February 2026 it had moved lower across all maturities, with long-term yields declining more than short-term yields. This flattening of the yield curve signalled an improved inflation outlook and a shift in market expectations for monetary policy, strongly supported by the announcement of the revised 3% inflation target. The level of the yield curve then increased across all maturity categories, except at the extreme short end, as bond yields responded to the war in the Middle East.

Annual average growth in the broadly defined money supply (M3) accelerated from 6.3% in 2024 to 6.8% in 2025. Deposit growth of non‑financial companies supported the expansion in M3 in the first half of 2025, although this momentum slowed in the second half of the year. By contrast, growth in deposits of financial companies rebounded strongly in the second half of 2025, while household deposit growth moderated steadily throughout the year. Growth in credit extension accelerated gradually throughout 2025, driven primarily by the corporate sector, while household credit growth only started to improve in the fourth quarter of the year.

The preliminary non-financial public sector borrowing requirement decreased significantly to R133.0 billion in the first nine months (April–December 2025) of fiscal 2025/26. This reflected the lower cash deficit of the consolidated general government, alongside a switch from a cash deficit to a cash surplus by non-financial public enterprises and corporations.

National government’s cash book deficit narrowed to R242.9 billion in the first nine months of fiscal 2025/26 compared to R285.2 billion recorded in the corresponding period of the previous fiscal year as total revenue increased at a faster pace than total expenditure. In addition, the primary balance switched from a deficit to a surplus over the same period. However, national government’s total gross loan debt increased to 78.8% of GDP as at 31 December 2025, up from 77.1% a year earlier.

The 2026 Budget Review expects the economic outlook to improve moderately over the medium term. The consolidated budget deficit is projected to narrow to 4.5% of GDP in fiscal 2025/26 and further to 3.1% in fiscal 2028/29, while the primary surplus is anticipated to increase steadily over the medium term. Gross loan debt as a share of GDP is expected to stabilise at 78.9% in fiscal 2025/26 before declining to 76.5% in fiscal 2028/29.