South Africa’s economy is believed to have recorded growth for the third consecutive quarter, supported largely by renewed strength in the critical manufacturing and mining industries. This rebound has provided some momentum to the broader economy. However, fresh challenges have emerged, particularly in the form of newly imposed tariffs from the United States, which now threaten to hinder the pace of future expansion.
Key Takeaways
- Modest Economic Growth Expected: Analysts forecast South Africa’s economy grew by 0.4% in the second quarter of 2025, marking the third consecutive quarter of expansion, with manufacturing and mining leading the recovery.
- US Tariffs Pose New Risks: A recently imposed 30% US tariff on South African exports could weigh heavily on the automotive and agricultural sectors, potentially threatening up to 30,000 jobs and slowing momentum in the second half of the year.
- Mixed Consumer and Retail Outlook: While lower interest rates and subdued inflation have supported retail sales, rising utility costs and trade uncertainty are expected to limit consumer spending growth for the rest of the year.
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Analysts Predict Modest Second Quarter Expansion
A Bloomberg survey of analysts, conducted between 8 and 13 August, indicates that the country’s economy is expected to post a 0.4 percent increase when the official second quarter gross domestic product figures are released on 9 September. This would mark a noticeable improvement compared with the 0.1 percent growth achieved in the preceding three-month period. The anticipated uplift is widely attributed to stronger activity in both the manufacturing and mining sectors, which have been recovering from a period of significant weakness.
Sector Rebounds Drive Overall Growth
Market observers believe the revival of the manufacturing and mining sectors has provided an important boost to the country’s overall economic performance. These sectors, which had previously endured deep negative trends, appear to have staged a meaningful turnaround during the second quarter. The recovery is viewed as broad-based, with additional gains seen in related industries such as utilities. Manufacturers have reported stronger order books and improved production efficiency, while mining firms have benefitted from both higher commodity prices and a gradual stabilisation in operational disruptions.
Optimistic Growth Forecast from Old Mutual
Johan Els, the chief economist at Old Mutual Ltd., has expressed a more optimistic view than most of his peers, projecting a second quarter expansion of 0.8 percent. He has pointed to the marked improvement in several sectors, including mining, manufacturing, and utilities, as evidence of a genuine economic rebound. According to his assessment, these industries have reversed much of their earlier declines, contributing to a stronger performance overall.
He also indicated that, if current momentum holds, the economy could potentially outperform expectations for the remainder of the year, although this will depend heavily on avoiding further global trade shocks.
Economists note that the mining sector’s improvement has been assisted by favourable price movements, driven primarily by demand conditions. Frank Blackmore, lead economist at KPMG in South Africa, has highlighted that recent price indicators for commodities such as platinum and palladium have begun to move upward. This trend may have been fuelled by overseas buyers accelerating purchases in anticipation of higher trade costs linked to tariffs. Industry insiders believe this pre-emptive buying could temporarily inflate export figures, giving the sector a short-term boost before normalising later in the year.
US Tariffs Create New Trade Pressures
On 7 August, United States President Donald Trump introduced a series of tariffs on exports from multiple trading partners, a move that has disrupted international supply chains and cast doubt over the trajectory of global economic growth. For South Africa, the tariff has been set at a steep 30 percent, placing it among the most heavily affected nations. According to the country’s trade department, this measure is likely to put considerable strain on the automotive and agricultural sectors and could endanger as many as 30,000 jobs. Cautions raised as the knock-on effects may also spread into related industries such as logistics, manufacturing supply chains, and even retail, given the interconnected nature of South Africa’s trade relationships.
Economic specialists warn that these trade restrictions could undermine South Africa’s ability to maintain its growth streak during the second half of the year. Jee-A Van Der Linde, senior economist at Oxford Economics, has suggested that the negative impact of the tariffs will become increasingly evident during the third and fourth quarters. As businesses adjust to a more challenging trading environment, there is a risk that employment levels could remain subdued and that new job creation will be limited. There is growing concern that some firms may choose to cut back operations or delay planned expansions until there is greater certainty about global trade conditions.
Unemployment Rate Reaches Annual High
Statistics show that South Africa’s unemployment rate rose to 33.2 percent in the second quarter, marking its highest level in a year. Analysts believe that in such an environment, businesses are unlikely to commit to expanding operations or significantly increasing production capacity. The uncertainty brought about by global trade tensions and domestic cost pressures is expected to deter many companies from hiring additional staff in the near term.
This high unemployment rate also risks further dampening consumer demand, creating a cycle that could slow economic momentum.
Consumer Spending Faces Pressure
While household spending is still expected to play an important role in supporting economic activity for the remainder of the year, several factors may restrict its growth. Persistent trade uncertainties, combined with elevated utility costs, are likely to erode consumer confidence. Economists have noted that recent electricity price hikes have already placed strain on household budgets, further dampening the willingness of consumers to increase their expenditure. Retailers, particularly in non-essential goods, are already bracing for weaker foot traffic and slower sales growth in the coming months.
Retail Sector Gains from Lower Interest Rates and Inflation
Despite these headwinds, there have been some encouraging signs within the retail sector. Growth in retail sales, which forms part of the broader trade category, rose by 0.9 percent in the second quarter after contracting by 0.4 percent in the first quarter. Analysts attribute this improvement in part to a sustained period of low inflation and a series of interest rate cuts by the South African Reserve Bank. Lower borrowing costs have provided some breathing room for households, allowing them to redirect more disposable income towards goods and services rather than debt repayments.
Inflation has remained close to the lower boundary of the central bank’s target range of 3 to 6 percent for nine consecutive months. This environment has provided policymakers with room to reduce interest rates by a combined 75 basis points, bringing the benchmark rate down to 7 percent in 2025. There is still potential for further rate reductions before the end of the year, which could provide additional support to household spending and overall economic activity. However, economists caution that if inflation begins to trend upwards due to currency weakness or rising global commodity prices, the Reserve Bank may be forced to slow or halt its easing cycle.
Conclusion
South Africa’s economy has shown signs of resilience, with manufacturing and mining staging notable recoveries that have helped deliver a third straight quarter of growth. However, the introduction of steep US tariffs introduces a significant new challenge, threatening key export sectors and job security. Although retail sales have benefitted from favourable monetary conditions, persistent cost pressures and weaker consumer confidence may restrict further gains. The coming months will be critical in determining whether the country can maintain its upward trajectory or whether external trade pressures will stall the recovery.
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