By: Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano
Low-growth regime persists despite a likely 2Q25 rebound
On Tuesday, Stats SA will release GDP data for 2Q25. This release comes at a time when growth expectations for 2025 have been revised down to around 1.0%, from nearly 2.0% at the beginning of the year. The 1Q25 outcome confirmed the economy's weak growth path, posting just 0.1% q/q (seasonally adjusted), supported mainly by a rebound in agriculture. Excluding agriculture, GDP would have contracted by 0.3% q/q and slowed to 0.3% y/y (not seasonally adjusted). Below we unpack the likely outcome for 2Q25.
At the time of the 1Q25 release, business confidence, as measured by the RMB/BER Business Confidence Index, stood at 45. Since then, a turbulent policy and global trade backdrop has weighed heavily on sentiment. In April, the United States (US) administration announced reciprocal tariffs, raising uncertainty and sparking a global market sell-off. While the implementation was briefly paused, a subsequent tit-for-tat trade war with China escalated tariffs above 100% before a truce brought them back below 50%. Domestically, Treasury struggled to pass the 2025 budget, with a proposed VAT hike ultimately scrapped in the final May 2025 "Budget 3.0." These developments eroded confidence in both trade prospects and the durability of the Government of National Unity (GNU). As a result, the RMB/BER BCI fell to 40 in 2Q25 and remained depressed at 39 in 3Q25. To put this into perspective, six out of ten businesses remain dissatisfied with prevailing conditions, a poor signal for investment and employment in an economy desperate for jobs.
Despite weak sentiment, high-frequency data for 2Q25 points to a stronger growth outcome than in 1Q25. Mining and manufacturing rebounded, up 3.6% q/q and 1.6% q/q, respectively (seasonally adjusted). Electricity output edged up by 0.4% after contracting in 1Q25. On the demand side, retail sales volumes increased 0.9% following a 0.4% decline, with motor trade as well as food and beverages activity also showing improvement. Wholesale trade, however, remained under pressure as tepid demand raises inventory costs. In transport, freight volumes contracted by 1.5%, though passenger journeys still grew, albeit at a slower pace.
Taken together, these factors suggest that GDP likely accelerated to around 0.5% q/q in 2Q25, compared with 0.1% in 1Q25. Risks to this estimate stem from the volatile agricultural sector, which could swing the outcome either way, though we expect modest growth. Private sector fixed investment will be closely watched, given the 4.5% q/q contraction in 1Q25 and persistently subdued business confidence. We currently forecast a 0.3% y/y decline in private sector fixed investment in 2025, following a 4.2% drop in 2024.
Week in review
The Manufacturing PMI fell by 1.4 points to 49.5 in August, slipping back into contractionary territory and partially reversing July's brief expansion. Sector activity remained subdued, with both domestic and export demand under pressure, reflected in an 8.5-point drop in new sales orders to 47.4. Business activity continued its ten-month contraction streak, and supplier deliveries declined, likely due to weaker orders rather than logistical improvements. Despite this, the employment index rose by 5.2 points to 48.9, though it remained below the neutral 50-mark for an 18th consecutive month. Input cost pressures eased slightly, supported by a stronger rand and stable oil prices. Encouragingly, the index tracking expected business conditions in six months edged up to 56.8, suggesting some resilience amid a challenging trading environment. Notably, the average PMI for 3Q (with September pending) stands at 50.2, up from 45.4 in 2Q25.
Vehicle sales volumes increased by 18.7% y/y in August, reaching 51 880 units, up from 51 383 units in July. The increase was mainly driven by continued growth in new passenger car sales, which expanded by 22.5% to 36 941 units, marking a 14th consecutive monthly gain. New commercial vehicle sales also advanced by 10.3% to 14 966 units. Within this segment, light commercial vehicles rose by 15.1%, heavy commercial vehicles surged by 56.9%, and bus sales increased by 22.4%. By contrast, medium commercial vehicles declined by 3.9%, after averaging 12.9% y/y growth over the previous eight months. Extra-heavy commercial vehicle sales remained under pressure, falling by 28.0% and extending their losing streak to 16 consecutive months.
The overall strength in sales continues to be supported by low and stable inflation, the recent interest rate cutting cycle, and strong demand for entry-level and affordable brands. Year-to-date (January to August), total sales are 48 790 units higher than during the same period last year.
The RMB/BER Business Confidence Index (BCI) edged down to 39 index points in 3Q25, from 40 previously, falling below its long-term average of 42 and reflecting widespread dissatisfaction among businesses. While the composite index appeared largely flat, this masked significant sector-level shifts, with confidence in each sector moving by ten points or more, well beyond typical volatility. Building contractors and new vehicle dealers saw improved sentiment, supported by interest rate cuts and resilient demand in budget-friendly segments, while the manufacturing, retail, and wholesale sectors reported notable declines amid global trade uncertainty and weak consumer demand. The survey period coincided with the imposition of 30% tariffs on South African (SA) exports to the US, dampening sentiment and disrupting activity, particularly in the automotive sector. In addition, although the South African Reserve Bank's rate cut and its shift toward a lower inflation target offered some relief, inflation ticked up in July and added complexity to the outlook. Overall, the survey results suggest that the economy continues to muddle through, with confidence levels too low to catalyse the investment needed to lift SA's growth and employment trajectory.
Electricity production declined by 2.3% y/y in July, following a 1.3% decline in June. However, on a seasonally adjusted basis, generation rose slightly by 0.1% m/m, partially recovering from a 1.4% decline in June. Looking at the broader trend, electricity generation increased by 1.1% in the three months ending July 2025 compared to the previous three-month period, suggesting that output is stabilising.
Gross foreign exchange reserves increased to $70.4 billion in August, from $69.2 billion in July. This largely reflected a $765 million increase in foreign exchange reserves to $50.2 billion, underscoring a foreign exchange loan received on behalf of government. Meanwhile, gold reserves increased by $425 million to $13.7 billion, supported by the increase in the US dollar gold price.
Week ahead
On Wednesday, the FNB/BER Building Confidence Index for 3Q25 will be published. Last quarter, confidence in the building sector dropped to 36 index points from 41 previously. The biggest drag came from hardware retailers, whose confidence fell by a massive 24 points, mainly due to rising labour costs that hurt profitability, even though sales volumes held up. There were some bright spots: architects and quantity surveyors reported strong growth in work, suggesting that building activity could pick up in the coming quarters, with quantity surveyor confidence rising to 50, the highest since 2017. Nevertheless, delays in project approvals and client payments remained a concern and could dampen expectations of near-term activity.
On Thursday, we will get current account data for 2Q25. Last quarter, SA's external position showed a modest improvement, with the current account deficit narrowing to R35.6 billion from R39.3 billion in 4Q24, remaining steady at 0.5% of GDP. This was largely driven by a smaller deficit in the services, income, and transfer account, while the trade surplus narrowed slightly as imports outpaced exports. Elevated precious metal prices, alongside softer oil prices, continued to support the terms of trade.
Also on Thursday, mining production data for July will be released. In June, production expanded by 2.4% y/y, after expanding by a modest 0.3% in May. Seasonally adjusted output, which feeds into the official calculation of quarterly GDP growth, grew by 0.2% in June, after a 3.9% increase in May. As a result, mining output expanded by 3.9% q/q in 2Q25, partly recovering from the 4.1% contraction in 1Q25.
Lastly on Thursday, the July manufacturing production data will be published. In June, factory output expanded by 1.9% y/y, after increasing by 0.7% in May. On a seasonally adjusted basis, production was flat (0% m/m) in June, following 2.2% growth in May, suggesting 1.6% quarterly growth.
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