South africa: 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.

According to South African Government News Agency, this was stated by Finance Minister Enoch Godongwana during the 2026 Budget Speech in Parliament. He forecasted real economic growth of 1.6% in 2026, marking an improvement from the 1.4% estimated in 2025. This positive trend 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.

Despite the optimistic outlook, Minister Godongwana acknowledged ongoing challenges affecting the economy. Persistent logistics bottlenecks, weak public infrastructure, and the recent outbreak of foot-and-mouth disease continue to hinder economic activity and pose risks to the outlook. He emphasized that rapid inclusive growth remains the only durable path forward.

The 2026 Budget Review by National Treasury highlighted 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 anticipated to ease from the high growth estimated for 2025, it is expected to contribute significantly to medium-term growth. This is supported by gains in real purchasing power, moderately stronger wage growth, easing inflation, wealth gains from rising asset prices, improved consumer sentiment, and better credit conditions.

Further support for growth is anticipated from private sector investment, buoyed by a relatively resilient global environment and easing domestic supply constraints. A continued recovery in rail and port capacity is also expected to enhance foreign trade volumes over the medium term.

Treasury reported a decrease in South Africa’s unemployment rate by 1.3% over the first three quarters of 2025, reaching 31.9%, while total employment exceeded 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 ten adults are employed or actively seeking work. The persistently high unemployment rate underscores the depth of structural constraints in the labour market, where labour force growth surpasses the pace of job creation.

To reduce unemployment, faster and more inclusive economic growth that expands productive capacity and supports labour-intensive sectors is crucial. Achieving higher levels of job creation over the medium to long term necessitates addressing longstanding regulatory barriers, narrowing spatial and infrastructure disparities, reducing high levels of crime, and improving education and training outcomes.

Inflation is expected to rise moderately from 3.2% in 2025 to 3.4% in 2026, primarily driven by higher food prices, particularly meat, due to supply disruptions linked to foot-and-mouth disease. Treasury anticipates inflation to ease to 3.3% in 2027 and 3.2% in 2028. 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, aiding in protecting 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 quickly adjusting to the new target.