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Among major advanced economies, growth rates are expected to converge: the US is slowing, while others are projected to grow faster than they did last year. However, the medium-term growth outlook remains uncertain due to rising trade protectionism and the increased use of tariffs for non-trade purposes, which could further disrupt supply chains and global trade.
Global disinflation has continued, aided by lower energy prices and cooling labour markets in advanced economies. A weaker US dollar has also helped reduce imported inflation in other countries. In countries that have imposed tariffs, signs of pass-through to consumer prices are emerging, and are likely to delay the achievement of inflation targets.
Central banks are expected to ease policy further, but the extent and pace of rate cuts will differ due to divergent inflation risks and distances from neutral. Across emerging markets, policy rates are mostly near neutral. Elevated global economic uncertainty increases the risk of abrupt currency depreciations and potential rises in inflation, especially in emerging economies. As a result, central banks are likely to remain cautious and data-dependent as they work to stabilise inflation at target levels.
Challenges for monetary policy are also likely to emanate from high fiscal deficits and elevated debt levels that stimulate demand and raise long-term interest rates. This can potentially undermine the efficacy of monetary policy and raise the risk of fiscal dominance. For emerging markets with high debt levels, rising global interest rates increase the cost of accessing international capital, posing risks to both the balance of payments and fiscal sustainability.
South Africa’s inflation hovered around the lower bound of the 3–6% target band over the past year, while forecasts were benign. Core inflation has been stable at around 3%. The favourable inflation outlook enabled the MPC to reduce the policy rate by a further 50 basis points during the review period.
In July 2025, the SARB revised its preferred inflation objective down to 3% from 4.5% to lock in recent disinflation gains. The rand and bond yields responded positively to the improved inflation dynamics. A low long-term inflation rate is associated with reduced borrowing costs and improved macroeconomic stability. However, inefficiencies in administered pricing remain a challenge. While lower headline inflation helps moderate administered price inflation, sector-specific reforms are needed to improve pricing efficiency.
The domestic economy grew by 0.8% quarter on quarter in the second quarter of 2025, exceeding expectations. However, growth projections for the remainder of the year remain modest at 0.4% per quarter, reflecting weak investment and the higher US tariffs on South African exports. Unlocking investment at scale requires comprehensive and coordinated reform efforts across various sectors. Addressing only a single constraint, as has been the case so far with regards to load-shedding, has proven insufficient to restore investor confidence. Persistent logistical bottlenecks and high costs of doing business remain key barriers and require urgent attention. A more favourable macroeconomic environment, characterised by low inflation and progress towards fiscal sustainability, would significantly enhance the investment climate.
