Treasury slashes SA's GDP forecast for 2025 by 0. 5 percentage points on global headwinds
The National Treasury has revised South Africa's growth forecast for 2025/26 fiscal year drastically lower on the back of a weaker global outlook, trade frictions, increased uncertainty, and lower projected investment.
Finance Minister Enoch Godongwana told Parliament on Wednesday that since the publication of the Budget Review in March, greater uncertainty and trade fragmentation had contributed to a weaker economic outlook.
Godongwana highlighted that South Africa was highly exposed to external volatility as a small open economy dependent on global trade and financial inflows.
On the back of heightened trade tensions and elevated policy uncertainty weighing on the global outlook, Godongwana said Treasury had to revise its GDP figures downwards by 0.5 percentage points.
"As a result, we now estimate real GDP to grow at 1.4% in 2025. This is lower than the 1.9% we projected in March," he said.
Godongwana said the outlook was negatively affected by the impact of weaker-than-expected growth in the fourth quarter of 2024, along with persistent logistics constraints, heightened political uncertainty, high borrowing costs and global headwinds.
In the medium term, Treasury is forecasting domestic GDP to rise moderately to an average of 1.6% between 2025 and 2027, significantly lower than the 1.8% forecast two months ago.
"Over the next two years, we project real GDP growth to rise moderately, to 1.6% in 2026 and 1.8% in 2027," Godongwana said.
In recent months, the announcement of large tariffs by the United States, followed by a partial/temporary suspension of these measures, triggered severe volatility in global markets, trade and growth projections.
In April, the International Monetary Fund projected that global growth will fall from 3.3% in 2024 to 2.8% in 2025, recovering to only 3% in 2026.
Growth in advanced economies is expected to slow to 1.4% in 2025, dragged down by a weaker outlook for the US. Similarly, growth in emerging markets and developing economies is expected to slow from 4.3% in 2024 to 3.7% in 2025, with the largest downward revisions for countries hardest hit by recent US trade actions – particularly China and Mexico.
"At the same time, inflation expectations are now above central bank targets in many advanced and emerging market economies," Godongwana said. "And new trade barriers may raise inflation and prolong the cycle of higher interest rates."
Godongwana said the Treasury's strategy for faster growth, and to shield the country from the worst impacts of an increasingly uncertain global environment, remained anchored on maintaining macroeconomic stability, implementing structural reforms, improving State capability, and accelerating infrastructure investment.
He said although South Africa was benefiting from more stable power supply, structural constraints continued to limit economic growth and downside risks had broadened.
Godongwana said domestic risks have tilted to the downside, and also warned that port and rail constraints and increased spending pressures could undermine investment and growth.
He said that rapid and effective implementation of reforms was needed to accelerate growth and employment.
"Looking further ahead, the risks to the outlook remain elevated. These include the worsening global outlook, weaker-than-expected growth in the fourth quarter of 2024, the persistence of logistics constraints and higher borrowing costs," he said.
"These developments are a vivid reminder that we must urgently turn the tide on our economic prospects and get our fiscal affairs in order. Faster, inclusive growth that creates jobs is the only path towards a more prosperous South Africa."
Visit: www.businessreport.co.za
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Daily Maverick
an hour ago
- Daily Maverick
Take the liquor industry's claims on pricing with a fistful of salt
The legal liquor industry is a major contributor to injury, disease and death in South Africa. Studies point to alcohol as a factor in 60% of femicides, half of all homicides, two-fifths of rapes and a quarter of traffic fatalities due to driver error. Late last year, National Treasury proposed the introduction of minimum unit pricing to reduce heavy drinking. There has since been a steady infusion of articles by the liquor industry claiming a sharp increase in the production and sale of illicit alcohol over the past decade, and suggesting an even more chilling effect on tax revenues if minimum unit pricing were to be implemented. Clearly, this narrative is meant to push the buttons of a government struggling to balance its books. Things came to a head on 8 August 2025 when Business Day led with claims by South African Breweries (SAB) CEO Richard Rivett-Carnac that minimum unit pricing will 'punish the poor and turbocharge the illicit market, harming both the industry and public safety'. These claims need to be dissected, both for their truthfulness and their logic. But before we do that, it is important to explain how minimum unit pricing works and what it is intended to do. Floor price Minimum unit pricing is not a tax, but a floor price for a unit of pure alcohol, below which the beverage containing it may not be sold. So, for instance, if the minimum unit pricing is R12 per unit, then a 330ml bottle of beer, which contains one unit (15ml) of pure alcohol (ethanol), could not be sold below that price. Thus, the introduction of minimum unit pricing would have no effect on the price of a 330ml bottle of Castle Lager, which at 5% alcohol by volume contains 1.1 units of ethanol and currently sells in a major retail store for R16. On the other hand, a minimum unit pricing of R12 would have a significant effect on the price of a one-litre bottle, which contains 3.3 units of ethanol and sells for just R22, or R6.67 per unit of pure alcohol. If the minimum unit price were R12, its selling price would have to go up by 80%. No wonder the CEO of its manufacturing company is worried. Of course, the question must be asked why alcohol in one-litre containers is sold so cheaply in the first place. It can't be that the cost of production of each unit of alcohol in the smaller container is more than twice that of the larger one. This price differential suggests deliberate tactics that encourage heavy drinking. In fact, a study from Tshwane published in 2018 found that drinkers who consumed alcohol from containers designed to hold more than one unit of ethanol – a standard drink – were nearly eight times more likely to drink heavily. No doubt the causality works both ways: those who need to drink heavily will buy cheaper liquor, and cheaper liquor feeds their craving to drink more. Injury, disease and death The fact is that the legal liquor industry is a major contributor to injury, disease and death in South Africa. Blood alcohol levels are not routinely taken from the perpetrators and victims of violence, but the many studies conducted over the past decade point to alcohol as a factor in 60% of femicides, half of all homicides, two-fifths of rapes and a quarter of traffic fatalities due to driver error. If the assertions of a study commissioned by the Drinks Federation of South Africa into illicit alcohol are true – that illegal trade constitutes about a fifth of the total market – that still implies that legally produced alcohol contributes up to four-fifths of the total alcohol harm in South Africa. And unlike the industry's suggestion, the major damage is not the occasional death from ill-derived concoctions, but widespread harm from heavy drinking of all liquor products, irrespective of whether it is legally produced or not. Heavy consumption When we say South Africa has a big drinking problem, we are not talking about the number of people who drink, but the volume of alcohol that is consumed by those who do. Only one-third of adults say they drink, but the average drinker consumes five standard drinks a day – that's 2½ times more than what could be regarded as the upper limit of 'responsible drinking'. The liquor industry benefits from heavy drinking – the very same companies that appeal to public health and safety as reasons not to introduce minimum unit pricing. Their claims must be taken with a fistful of salt. Much of the excessive supply of liquor finds its way into poorer communities, where the death rate from alcohol is 4½ times higher than in wealthier ones. Here, the call to 'drink responsibly' rings hollow as many drink heavily to escape the hardships of a daily life devoid of recreational alternatives. The industry compounds their misery by flooding their communities with large quantities of liquor at low prices. It is this behaviour that punishes the poor, not the proposed introduction of minimum unit pricing. Where minimum unit pricing has been introduced in other countries such as Scotland and Wales, Australia and Russia, it has reduced the prevalence of heavy drinking, with positive health benefits for all, including poorer consumers. A systematic review published in 2023 found that immediate reductions in acute alcohol-related hospital admissions ranged between 2% and 9%. Unsurprisingly, admissions for chronic alcohol-related conditions such as liver cirrhosis lagged by two to three years, but then reduced by 4%-9% annually. Illicit sales There may well be some growth of the illicit market, which could affect tax revenues. However, it is clear from the abovementioned review that the illegal market in countries implementing minimum unit pricing did not grow as much as industry had predicted, certainly not enough to undermine its substantial health benefits and consequent savings in healthcare costs. In South Africa, the claim by the liquor industry that illicit sales have increased by 53% since 2017 must be fully interrogated, given that legal beer and wine sales have both increased markedly over the past decade. That report must be made publicly available if it's to be taken seriously. As it stands, there is no objective evidence of substantial erosion of the legal market that would have been expected if illicit sales had expanded sharply – especially as South African consumers have been under pressure for a long time. Nonetheless, the growth of the illicit trade is a real risk that must be dealt with in the same way that illegal cigarettes should be – with effective enforcement of a track-and-trace system from the point of production to the point of sale. There is nothing to stop industry taking the lead in this regard, unless, of course, it is hesitant to divulge where its own products end up. Tax revenue Any excise tax losses will also be offset by the increase in VAT revenues. Modelling by UCT academics Corné van Walbeek and Naomi Gibbs shows that, taking all factors into account, government revenues will increase if minimum unit pricing is set at about R12 per unit (at 2025 prices). Consumption among moderate drinkers – who tend to buy higher-priced products – will be largely unchanged, while consumption among heavy drinkers will decrease. That is exactly what minimum unit pricing is intended to achieve – a reduced burden on society and net savings to the fiscus. Government must not be deterred by claims that minimum unit pricing will reduce tax revenue. The role of extra taxation of the liquor and tobacco industries is to make them pay for the damages they cause to society. If the liquor industry caused less harm to our society in the first place, Treasury would need less money to pay for its damages. SAB's Rivett-Carnac would have us believe that the status quo represents an optimal balance between the liquor industry's societal harm and economic benefit – in a country with twice the average global consumption per drinker, 10 times the worldwide prevalence of foetal alcohol spectrum disorder, eight times the global homicide rate, 1.3 times the traffic fatality rate and 1.1 times the incidence of intimate partner violence compared with the global average. The experience of other countries that have implemented minimum unit pricing and other strategies to reduce heavy drinking proves that we should not swallow that fallacy. DM
Eyewitness News
2 hours ago
- Eyewitness News
Perfecting the political funding arena still a work in progress
CAPE TOWN - The Electoral Commission said perfecting the political funding arena was still a work in progress. But it would not be drawn on whether the recently raised limits for declaring private donations were sufficient. Addressing the concerns of civil society and political parties in Cape Town on Wednesday, the commission said it was for Parliament to grapple with these matters. Newly proposed regulations from Parliament raising the private donation limit to R30 million a year and the declaration threshold to R200,000 are yet to be promulgated by the president. Responding to concerns that political parties are advising donors to donate in smaller amounts so as to avoid having to declare it to the IEC, the commission said there was nowhere to hide and all funding eventually had to be accounted for in the annual financial statements of parties. The commission's George Mahlangu said that government funding to represented political parties was also strictly monitored. "The law is clear: section seven of the act provides on how these funds can be utilised, that's why the books of the political parties have to be audited by independent auditors." He said that the Multi-Party Democracy Fund, from which all political parties can benefit, had, however, not been as successful as the commission had hoped. Only around R45 million had been raised over the past four years. "We were so optimistic that this would do well, but to our surprise and disappointment, it doesn't receive the contributions that we expect." Mahlangu said that represented political parties were being sanctioned for not complying with declaring their spending.
TimesLIVE
3 hours ago
- TimesLIVE
Merafong in dire straits as half its water is lost to leaks and illegal mining
He added that a further R50m was paid last month in terms of an agreement with the National Treasury. 'The major contributions are non-recovery of revenue due to non-technical and technical water losses,' he said. Mabuza said the persistently low revenue collection rate undermined the municipality's ability to service creditors, fund infrastructure maintenance, and meet operational obligations. There were many broken meters that had not been replaced over the years, which had put a dent on the collection rate of the institution as these old meters result in inaccurate billing, and will require huge capital to replace in a short space of time, Mabuza said. He told the committee that from October until last month, Rand Water reduced the bulk supply of water to the municipality by 20%. This meant that some areas would end up with dry taps. Mabuza said there were times when the utility did not issue public notices to the community about the lack of water, which led to a public outcry. 'The municipality urgently outsourced water tankers, which further severely hampered the cash flow of the municipality, with a cost of over R5m. The municipality is unable to keep up with monthly invoices due to revenue collection being inadequate to cover the R45m a month billed by Rand Water [for] debt. [The] Eskom bill also ranges between R40m and R83m per month, depending on summer or winter tariffs.' Nelisiwe Ntlhola, director of municipal finance support in Merafong, told the committee that some of the root causes affecting revenue collection were unemployment, poverty and the influx of undocumented foreigners into the municipality. 'There is high unemployment in Merafong and high poverty, which is socioeconomically affecting the revenue of the municipality,' she said. Ntlhola said the province should step in and help the municipality by identifying people who can afford to pay and those who cannot. She said that after this profiling, the enforcement of collection should follow. Ntlhola said there was a lack of support from law enforcement officials when it came to the crime associated with water losses from illegal mining. DA MPL Solly Msimanga said the municipality has not had a proper maintenance plan, and this meant 'you are going to continue having losses'.
