South Africa’s Q2 growth hides fragile economy
By Chris Hattingh
South Africa’s economy showed a modest rebound in Q2 2025, with GDP rising 0.8% quarter-on-quarter, following sluggish 0.1% growth in Q1. This was the strongest quarterly performance since 2023. However, on an annual basis, growth remains subdued at 0.6%, barely above the 0.5% recorded in 2024.
The recovery was driven largely by the mining and quarrying sector, which expanded 3.7% after a 4.1% contraction in Q1, supported by higher output of platinum group metals, gold, and chromium ore. Increased household spending, boosted by recent interest rate cuts, also added momentum.
Yet the rebound highlights South Africa’s ongoing growth dilemma: the economy remains heavily dependent on temporary lifts from commodity cycles and consumer spending rather than on long-term structural improvements. Without reforms, growth will continue to struggle to reach even 1% in 2025. If progress is made at Eskom and Transnet, growth could edge higher, but in the absence of wider reforms, gains are likely to be minimal.
Economists stress that unlocking stronger growth requires action on several fronts: fixing Eskom’s unreliable energy supply, modernising Transnet’s ports and rail systems, ensuring greater policy certainty for investors, and improving labour flexibility and skills training. Together, these reforms could raise growth to 3–4% sustainably, and in the long term potentially above 5% — a sharp contrast to the current baseline of around 1%.
A key concern is the continued weakness of gross fixed capital formation (GFCF), which measures investment in factories, machines, and infrastructure as a share of GDP. The global average is 26%, but South Africa lags at just 15%. In Q2, fixed investment fell by a further 1.4%, the third consecutive quarterly decline. This not only reflects low investor confidence but also restricts the economy’s capacity to grow.
UN Trade & Development’s Global Trade Update for September 2025 highlights that “trade policy uncertainty has become a major source of global instability.” As measured by both the World Policy Uncertainty and World Trade Uncertainty indices, “uncertainty has soared to record levels.”
The Update points out that increased uncertainty will impact on the global economy in the form of slower growth and higher costs, with companies forced to “carry excess inventory, hedge against losses and reconfigure supply chains,” thereby “raising costs and discouraging investment.” Secondly, “sudden shifts unsettle exchange rates and weaken investor confidence, capital flows and credit conditions.” And thirdly in the form of an erosion of trust; global cooperation is made more difficult because “weaker rules and unilateral actions fuel retaliation.”
While daunting and intimidating, this context of increased global uncertainty presents South Africa with the ideal opportunity to get its domestic structural reforms moving quickly, and to get its business environment house in order. International markets and investors are not going to cease looking for new opportunities, but it is up to South Africa’s government to make the political and policy decisions that would convince those investors and companies to deploy substantial amounts of capital in the country.
The bottom line: while Q2 delivered the strongest quarterly growth in nearly two years, South Africa’s economy remains on fragile footing. Without decisive reforms, particularly in energy, logistics, and investment policy, the country risks continued underperformance — and the opportunity to shift to a higher-growth path will remain out of reach.
