Is South Africa's economy on the mend as 2026 approaches?
Things could well be looking up for South Africa, with narrowing unemployment and modest economic growth.
Inflation is set to stabilise towards the end of the year, interest rates are coming down, and the rand has settled within a more predictable range.
Economic growth
Gross domestic product (GDP) grew by 0.5% in the three months to September, down from 0.8% in the previous quarter.
Economists remain cautiously optimistic that South Africa will end the year with growth slightly above 1%.
Investec analyst Lara Hodes had anticipated a marginal 0.3% growth, with Investec expecting around 1.3% for the year, in line with the South African Reserve Bank and slightly above National Treasury forecasts.
PSG Financial Services chief economist Johann Els is more confident.
“Growth has been trending somewhat better this year than consensus expectations earlier in 2025. My full-year forecast has been around 1.2% to 1.3% since March,” said Els.
Els added that “growth may even come out closer to 1.4%. While that remains weak, it is still an improvement on the 0.5% recorded in 2024.”
Hodes noted that consumer sentiment improved in the fourth quarter.
“Consumer sentiment was less negative in the fourth quarter,” she said, reflecting the more positive mood captured by recent indicators.
Rebound and trajectory
Recent steady quarterly gains suggest the economy is becoming more resilient. This improvement is supported by declining inflation, reduced interest rates, and the initial stages of an investment rebound.
“If sustained, this trajectory could help lift confidence, support job creation, and provide a firmer foundation for fiscal consolidation efforts heading into 2026,” Anchor Capital said.
However, labour-market challenges such as skills shortages and regulation will keep growth from reaching the 5% to 6% South Africa ultimately needs, Els cautioned.
Labour market
Unemployment levels have declined, though broader underutilisation remains high.
Statistics South Africa’s latest quarterly labour force survey for the third quarter shows the official unemployment rate fell to 31.9% from 33.2%, with around 248 000 more people employed, bringing total employment to about 17.1 million.
Despite this, broader measures that include discouraged and underutilised workers keep labour underutilisation at 44.9%, highlighting that many South Africans remain on the fringes of the job market.
Yet, GDP is still below the level needed for meaningful job creation. Investec chief economist Annabel Bishop puts this figure at around 3%.
Interest rates and household relief
The lending environment is improving.
On November 11, as expected, South African Reserve Bank governor Lesetja Kganyago announced a 0.25 percentage point cut in the prime rate to 10.25%.
After holding rates steady at the previous meeting, the Monetary Policy Committee’s unanimous decision takes the total decline since last September to 1.25 percentage points.
“This will lower the repayments on all sorts of debts, from credit cards and personal loans to car finance and mortgage bonds,” said Stephen Whitombe, MD of the FIRZT Realty group.
Thys van Zyl, CEO of Everest Advisory Services, said the cut is both a psychological and economic lifeline for indebted households.
“This cut is good news for households that have been under severe debt and cost pressure over the past two years. It provides direct financial relief, improves cash flow, and sends a positive signal that inflation remains under control.”
On a practical level, the cumulative reduction means that on a R1 million mortgage at prime, monthly repayments have dropped from R10 837 to R9 984 – a saving of R853 per month, or over R10 000 per year, according to Jawitz Properties.
Inflation context
This rate cut followed Statistics South Africa’s inflation report – a Grinch as it showed year-on-year inflation rising to 3.6% from 3.4% the prior month.
To put this in perspective, a trolley of groceries that cost around R1 000 at the start of the century now costs R3 733, a compound increase of 277%, according to a website set up by Renier Crause.
Kganyago said the Reserve Bank is on track to meet 3% inflation within the next three years, while most economists expect it to have peaked around 4% by year-end.
So, as we go into 2026, it’s not all doom and gloom.