Economic Optimism Remains

South Africa’s economic growth outlook is “steadily improving”, with growth projected to reach some 1.6% in 2026, following growth of 1.4% in 2025.

This is according to Finance Minister Enoch Godongwana, who delivered the 2026 Budget Speech in Parliament on Wednesday.

“We project real economic growth of 1.6% in 2026, an improvement from the 1.4% estimated in 2025.

“This improvement reflects the continued strengthening of economic performance from the second half of 2025. Over the medium term, growth is expected to average 1.8%, reaching 2% by 2028,” the Minister said.

He added that although the outlook is optimistic, challenges to the economy remain.

“Persistent logistics bottlenecks, weak public infrastructure and the recent outbreak of foot-and-mouth disease continue to weigh on economic activity and pose risks to the outlook.

“In light of this, rapid inclusive growth remains our only durable path forward,” he said.

Delving deeper into the numbers in the 2026 Budget Review, National Treasury noted that South Africa’s real gross domestic product (GDP) is expected to average 1.8% over the medium term, reaching 2% in 2028.

“Although household consumption is forecast to ease from the high growth estimated for 2025, it is expected to contribute the most to medium-term growth, supported by further gains in real purchasing power, moderately stronger wage growth, easing inflation, wealth gains from rising asset prices, improved consumer sentiment and better credit conditions.

“Additional support for growth is expected to come from private sector investment – encouraged by a relatively resilient global environment – and easing domestic supply constraints. A continued recovery in rail and port capacity is also expected to boost foreign trade volumes over the medium term,” the Budget Review read.

Treasury noted that South Africa’s unemployment rate has fallen by some 1.3% over the first three quarters of 2025 to reach 31.9%, while total employment has reached just over 17 million.

“However, the labour force absorption rate remains low at 40.6%, below the pre-pandemic level of 43.1%, indicating that only four out of 10 adults are employed or actively seeking work. South Africa’s persistently and extremely high unemployment rate reflects the depth of structural constraints in the labour market, where labour force growth exceeds the pace of job creation.

“Faster, more inclusive economic growth that expands productive capacity and supports labour-intensive sectors is the key to reducing unemployment. Achieving much higher levels of job creation over the medium- to long-term requires South Africa to address longstanding regulatory barriers, narrow spatial and infrastructure disparities, reduce high levels of crime, and improve education and training outcomes,” Treasury said.

Inflation is expected to rise moderately from 3.2% in 2025 to 3.4% in 2026, driven, in the main, by higher food prices.

The price of meat in particular is expected to rise “due to supply disruptions linked to foot-and mouth disease”.

Treasury expects inflation to ease to 3.3% in 2027 and 3.2% in 2028.

“[However], risks from geopolitical tensions, exchange rate volatility, administered prices and animal disease outbreaks remain elevated. The reduction of the inflation target to 3%, with a 1 percentage point tolerance band, will structurally reduce inflation, helping to protect real income levels.

“Inflation expectations have declined further, with the Bureau for Economic Research measure falling to its lowest level on record following the 2025 MTBPS announcement, indicating that expectations are adjusting to the new target quickly,” the department noted. – SAnews.gov.za