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At the start of 2025, there is greater optimism about the South African economy compared to 12 months ago. Economists expect lower inflation, a decline in interest rates and higher economic growth this year compared to 2024. All of this also points to better conditions for consumers in terms of their spending power.
Key points on the macro outlook include:
- Inflation is expected to average 4.5% in 2025, which is close to the middle of the central bank’s current 3%-6% target range. However, the South African Reserve Bank (SARB) has warned of upside risks to the cost of food, electricity and water.
- The rand exchange rate is a key factor to consider when it comes to the inflation outlook. However, the rand is very unpredictable partly due to the impact of global economic and geopolitical developments on this highly traded currency.
- We do not yet know how much electricity prices will increase in 2025 but can venture an estimate of 10%-20%. The National Energy Regulator of South Africa (Nersa) will announce the tariff increase before the end of January.
- The SARB Monetary Policy Committee (MPC) reduced interest rates by a cumulative 0.5 percentage points in September and November 2024, and is expected to reduce the repo rate by another 50 basis points in 2025Q1.
- SARB Governor Lesetja Kganyago said in November 2024 that the inflation target review “is coming to a conclusion”. An announcement on a lowered target (potentially 3%-5%) could be made in the short term.
- PwC forecasts economic growth of between 0.5% (downside scenario) and 1.3% (upside scenario) in 2025, with the range reflecting the wide variety of domestic and international uncertainties for the year ahead.
- A higher economic growth rate requires favourable monetary conditions to support household spending, public-private collaboration to implement reforms needed to boost the investment environment and improved logistics to support export revenues.
- The South African economy is forecast to create 115,000 jobs in 2025 compared to an expected increase of 340,000 in the labour force. This would result in the unemployment rate rising from 32.7% in 2024 to 33.2% in 2025.
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In this edition:
Key macro themes and scenarios for 2025
Inflation, interest rates, economic growth, employment and the rand
In the first edition of our South Africa Economic Outlook for 2025, we take a look at key macroeconomic forecasts for this year. Our analysis considers pertinent issues around each of the core macro variables, namely inflation, interest rates, economic growth, unemployment and the exchange rate.
Companies should use macroeconomic scenarios for planning to stay agile and prepare for deviations from baseline expectations. This can range from simple desktop or tabletop exercises to in-depth strategic workshops involving multiple business units, helping business leaders adapt to changing market and operating conditions.
Key content in this report includes:
- Inflation risks: SARB highlights pressure on the cost of food, electricity, water, insurance and wages.
- Interest rate decisions: Reducing the inflation target could result in lower long-term lending rates.
- Economic growth dilemma: What we need to reach stronger momentum in 2025.
- Exchange rate: A challenge to predict due to the impact of global developments on the rand.
- The unemployment challenge: Slow economic growth and climate change pose risks to job creation.
- How we can help clients with economic scenarios.
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Contact us
PwC Africa ESG Platform Leader, Strategy& and Chief Economist, Strategy& South Africa
Tel: +27 (0) 82 708 2330
