By: Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano
On 19 February 2025, Finance Minister Enoch Godongwana will present the 2025 Budget―his first Budget Review since the formation of the Government of National Unity (GNU). His October 2024 mini-budget highlighted fiscal challenges while maintaining a consolidation strategy, which we expect to continue, though with risks and challenges.
The external environment remains fluid. While new trade tariffs under the new Unites States (US) administration are not as extensive as initially feared, uncertainty persists. For South Africa, new trade tariffs will likely be limited but humanitarian funding could be targeted, particularly the potential withdrawal of PEPFAR funding (currently suspended by US courts). This could force difficult fiscal decisions for the Treasury.
Domestically, President Cyril Ramaphosa's State of the Nation Address (SoNA) signalled plans to transform the Social Relief of Distress (SRD) grant into a more sustainable income support mechanism. Meanwhile, public-sector wage pressures remain a key risk, especially after the higher-than-budgeted 5.5% wage increase offer for 2025/26. Potential bailouts for state-owned enterprises (SOEs), such as Transnet, also pose risks to the fiscal framework, which currently assumes no additional SOE funding. We estimate fiscal support for Transnet and other SOEs will total R75 billion over the medium term, impacting debt stabilisation, which Treasury currently projects to peak at 75.5% of GDP in 2025/26. Given these spending pressures and growth constraints, we expect a more prolonged path to debt stabilisation.
Despite these challenges, the GNU's priorities remain clear: driving inclusive growth and job creation, reducing poverty and the cost of living, and strengthening governance1. These objectives were reaffirmed in the 2024 Medium-Term Budget Policy Statement (MTBPS) and SoNA. The previous budget allocated R943 billion to infrastructure, and the President has reiterated that reforms and investment in infrastructure are critical to achieving growth above 3%2. Efforts to increase private-sector participation in public infrastructure projects are underway, with further updates expected in the 2025 Budget Review
Growth dynamics are improving, but there are risks
The Treasury's 2024 mini-budget projected 2024 GDP growth at 1.1%, lifting to 1.7% in 2025 and 2026 and 1.9% in 2027. We expect the Treasury's final estimate for 2024 GDP growth to fall below 1.0%, aligning with our and consensus predictions. While pending Agricultural GDP retrospective revisions may exacerbate forecasting complexities, available high-frequency data for 4Q24 points to a subdued GDP growth rebound in that quarter. Nevertheless, Treasury will likely keep their medium-term growth projections cautiously optimistic and approximately in line with our near 2.0% in 2025 and 2026. Ultimately, elevated global economy policy uncertainty, a faster-than-expected increase in consumer prices, and fewer-than-expected interest rate cuts could dampen growth prospects.
Revenue and spending on track with Treasury's latest projections
Despite challenges, tax receipts remain broadly on track to meet Treasury's latest estimates (Figure 2). Total gross tax revenue rose 5.3% in the fiscal year-to-date (April-December), compared to Treasury's full-year projection of 5.7% growth for 2024/25
Government spending has remained contained, with fiscal year-to-date non-interest expenditure rising 2.6% y/y―below Treasury's 4.3% projection for 2024/25. Debt-service costs have reached R233.1 billion this fiscal year, up 5.8% from R220.4 billion in the same period in the last fiscal year but still below the Treasury's full-year forecast of 9.2% growth. However, risks to expenditure remain, particularly from higher-than-budgeted wage settlements and potential renewed support for SOEs.
Fiscal outlook: a gradual deficit reduction
We expect the main budget deficit to reach R355.7 billion (4.8% of GDP) in 2024/25, slightly wider than the R324.2 billion (4.6% of GDP) recorded in 2023/24. Over the medium term, the deficit is projected to gradually narrow to around 3.5% of GDP by 2027/28. Meanwhile, we anticipate debt to peak at 77.7% of GDP in 2027/28―a more extended trajectory than Treasury's projected peak of 75.5% in 2025/26. Treasury's primary surplus target, a key anchor for fiscal policy, is expected to rise to 1.8% of GDP by 2027/28, while our estimate is more conservative at 1.3% of GDP. However, if growth and revenue outperform current projections-and non-interest spending remains disciplined―the debt peak could occur sooner than expected.
Week in review
Manufacturing output (not seasonally adjusted) declined by 1.2% y/y in December 2024, following an upwardly revised 1.9% y/y contraction (previously -2.6%) in November. Seasonally adjusted manufacturing output, which is crucial for quarterly GDP calculations, fell by 2.4% m/m, aligning with the PMI Business Activity Index. This followed a 1.3% m/m decline in November (previously -1.1%). Full 4Q24 data shows manufacturing output contracted by 0.8%, indicating that the sector weighed on overall GDP growth.
The manufacturing sector remained under pressure in 2024, constrained by weak domestic demand and a challenging global environment. Output declined by 0.4% for the year, following subdued growth of 0.6% in 2023. However, an anticipated improvement in domestic aggregate demand, coupled with the suspension of load-shedding, should help drive manufacturing recovery in 2025.
Mining production (not seasonally adjusted) unexpectedly contracted by 2.4% y/y in December 2024, following a -0.9% y/y decline in November. Seasonally adjusted mining output, which directly impacts quarterly GDP growth, fell sharply by 3.9% m/m after flat growth in November (revised from -0.2% to 0%). As a result, mining output contracted by 0.3% in 4Q24, weighing on GDP growth. Combined with a 0.8% q/q contraction in manufacturing output and a 0.5% q/q decline in electricity production, this weak mining performance clouds the anticipated GDP rebound for 4Q24
Despite domestic and external demand challenges, mining output grew by a modest 0.4% in 2024, following a 0.1% increase in 2023 and a sharp 7.8% contraction in 2022. While the continued suspension of load-shedding and gradually stabilising logistics should support mining output recovery, a challenging global trade environment, subdued commodity prices, and slowing growth in China pose significant headwinds.
Week in ahead
On Tuesday, the Quarterly Labour Force Survey (QLFS) for 4Q24 will be released. In 3Q24, QLFS data showed an increase in employment by 293 810 q/q, completely offsetting the 92 416 jobs lost in 2Q24. Unemployment fell by 373 305 q/q, bringing the total number of unemployed individuals to 8 010 520. The official unemployment rate was 32.1% in 3Q24, reflecting a decrease from 33.5% in 2Q24. Youth unemployment remains critically high at 60.2% for the 15 to 24 age group, and 40.4% for the 25 to 34 age group, underscoring the urgent need for pro-growth structural reforms to spur economic expansion.
On Wednesday, data on consumer inflation for January will be released. Headline inflation lifted slightly to 3.0% y/y in December, from 2.9% previously, with monthly pressure of 0.1% that reflected slight contributions from fuel and food inflation. Headline inflation averaged 4.4% in 2024, down from 6.0% in 2023. We anticipate that inflation will lift to 3.2% in January; however, the revised basket weights and index base provide additional uncertainty. We see inflation remaining subdued in 1H25, albeit rising steadily into the second half of the year. In line with this, inflation should rise from the 3% levels in 1H25 to around 5% by the end of the year. This will be dictated by fading positive base effects and improving demand. Nevertheless, average inflation should be softer than in 2024.
Also on Wednesday, retail sales data for December will be released. After a solid 6.2% y/y in October, retail sales exceeded expectations and accelerated further, to a robust 7.7% growth in November. Month-on-month, volumes increased by 0.8%, albeit down from a 1.6% increase in October. This growth underscores consumer spending benefits from the two-pot retirement system pension withdrawals, the declining inflation trajectory, particularly fuel costs, as well as improved consumer sentiment.
Tables
The key data in review
| Date | Country | Release/Event | Period | Act | Prior |
|---|---|---|---|---|---|
| 11 Feb | SA | Manufacturing production % y/y | Dec | -1.2 | -1.9 |
| SA | Manufacturing production % m/m | Dec | -2.4 | -1.3 | |
| 13 Feb | SA | Mining production % y/y | Dec | -2.4 | -0.9 |
| SA | Mining production % m/m | Dec | -3.9 | 0.0 |
Data to watch out for this week
| Date | Country | Release/Event | Period | Survey | Prior |
|---|---|---|---|---|---|
| 18 Feb | SA | Unemployment rate % | 4Q | -- | -32.1 |
| 19 Feb | SA | CPI % y/y | Jan | -- | 3.0 |
| SA | CPI % m/m | Jan | -- | 0.1 | |
| SA | Core CPI % y/y | Jan | -- | 3.6 | |
| SA | Core CPI % m/m | Jan | -- | 0.0 | |
| SA | Retail sales % y/y | Dec | -- | 7.7 | |
| SA | Retail sales % m/m | Dec | -- | 0.8 |
Financial market indicators
| Indicator | Level | 1W | 1M | 1Y |
|---|---|---|---|---|
| All Share | 87,841.46 | 0.7% | 7.1% | 20.2% |
| USD/ZAR | 18.49 | 0.3% | -2.9% | -3.3% |
| EUR/ZAR | 19.35 | 1.1% | -0.8% | -5.5% |
| GBP/ZAR | 23.24 | 1.4% | 0.0% | -3.5% |
| Platinum US$/oz. | 1,000.38 | 1.1% | 4.6% | 14.3% |
| Gold US$/oz. | 2,928.21 | 2.5% | 10.0% | 46.3% |
| Brent US$/oz. | 75.02 | 1.0% | -7.4% | -9.4% |
| SA 10 year bond yield | 9.86 | 1.3% | -1.3% | -9.9% |
FNB SA Economic Forecast
| Economic Indicator | 2022 | 2023 | 2024f | 2025f | 2026f | 2027f |
|---|---|---|---|---|---|---|
| Real GDP %y/y | 1.9 | 0.7 | 0.9 | 1.9 | 1.9 | 2.1 |
| Household consumption expenditure % y/y | 2.5 | 0.7 | 1.1 | 2.0 | 2.2 | 2.4 |
| Gross fixed capital formation % y/y | 4.8 | 3.9 | -3.2 | 3.7 | 3.6 | 4.9 |
| CPI (average) %y/y | 6.9 | 6.0 | 4.4 | 4.4 | 4.6 | 4.5 |
| CPI (year end) % y/y | 7.2 | 5.1 | 3.0 | 5.4 | 4.5 | 4.4 |
| Repo rate (year end) %p.a. | 7.00 | 8.25 | 7.75 | 7.00 | 7.00 | 7.00 |
| Prime (year end) %p.a. | 10.50 | 11.75 | 11.25 | 10.50 | 10.50 | 10.50 |
| USDZAR (average) | 16.40 | 18.5 | 18.4 | 18.5 | 18.5 | 18.9 |
