The State of the Economy: Reforms, resilience, and the long walk to 3%
A key issue that needs to be addressed tonight, after the fashion show, is that of economic growth.
Much seems to depend on phase two of Operation Vulindlela. If extended to also embrace industry and tourism with the same vigour with which Eskom’s woes were tackled, the country can reach much higher growth rates.
Gross domestic product growth of 3% is the magical number for job creation and South Africa is not there yet.
In fact, the International Monetary Fund (IMF) this week noted that economic growth should reach 1.3% to 1.4% in 2025/2026. Then, it said, it should rise gradually to 1.8% in the medium term, supported by ongoing structural reforms.
In a South African context, that would be in the next three years based on the fact that the Medium-Term Budget Policy Statement runs in three-year cycles.
Carpe Diem Research forecasts economic growth in 2026 at 1.6%, supported by progress on structural reform initiatives and a moderate recovery in infrastructure spending.
Investec economist Annabel Bishop is somewhat optimistic, having recently noted that the economic outlook in general is expected to improve through to 2030.
At this point, she sees growth nearing 3.5% year-on-year as infrastructure investment accelerates on Operation Vulindlela phase two and a jump in private sector fixed investment.
It should be noted though that the global environment is highly uncertain, Bishop cautions.
The IMF did state that the economy has proven resilient to the higher global policy uncertainty experienced in 2025, owing to its ample natural endowments, independent institutions, and strong monetary policy framework.
The PayInc Economic Index, which reflects the value of monthly electronic transactions cleared through its systems, ended 2025 on a strong note. However, this almost immediate measure of economic growth moderated in January 2026.
PayInc’s index does show higher confidence levels in 2026, remaining 3.4% higher than a year ago, as Shergeran Naidoo, head of Stakeholder Engagements at PayInc noted.
The results represent a slight shift from December’s strong performance, during which both the nominal value and volume of transactions that cleared through PayInc reached all-time highs.
PayInc’s figures signal that “economic activity remained resilient despite several challenges,” said Elize Kruger, independent economist.
“Given the timeous signals from the index, expectations that the economy grew by 1.3% in 2025, almost tripling the 0.5% in 2024, was well anticipated,” Kruger added.
Yet, PayInc cautions that 2026 is likely to again be characterised by elevated volatility and uncertainty, as geopolitical developments, trade tensions and political realignments continue to unfold.
This could be good news for commodity prices in South Africa, which will boost South Africa’s fiscus, it notes.
“While the global environment is currently favourable for South Africa, the local economy will experience cyclical support from moderate inflation, real wage increases and interest rate cuts that will buoy household spending,” said Kruger.
“Overall, the South African economy starts the year on a reasonably optimistic footing, with some tailwinds still playing out,” said Kruger.
“But ongoing progress on structural reforms, a sharp focus on governance and rooting out corruption are needed to ignite a much-needed improvement in confidence levels in the economy,” said Kruger.
For its part, National Treasury said it was committed to safeguarding the macroeconomic stability of the country with specific focus on strengthening the credibility of the fiscal framework, reducing debt to a sustainable level, increasing financial stability, and enhancing the implementation of reforms to boost productivity.
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