R466bn ‘hit' as National Treasury lowers SA GDP forecast
South Africa's National Treasury has lowered its GDP growth forecast for the country (to 1.4%) for 2025, as well as for the next two years (1.6% in 2026 and 1.8% in 2027), in the wake of 'international trade volatility and policy uncertainty' due to US President Donald Trump's tariffs and the resultant threat of a global trade war.
The slower growth over the next three years is expected to have a R466 billion 'hit' on the SA economy, Director-General (DG) of the Treasury Duncan Pieterse confirmed in response to questions during a Budget 3.0 media Q&A session on Wednesday.
In the March budget, Treasury forecast 1.9% GDP growth for 2025, 1.7% for 2026, and 1.9% for 2027. However, it had to revise this downwards in the latest budget.
Facing questions about SA's 'weaker fiscal position' reflected in the country's higher debt-to-GDP forecast of 77.4% in Budget 3.0 (up from 76.2% in the March budget), Pieterse said the downward revision in economic growth 'is what's driving' the increase in debt-to-GDP projections over the next three years, not higher government debt levels or significant increases in spending.
ALSO READ: Sensible or underwhelming? Economists react to Godongwana's Budget 3.0
He said that due to the revision of the economic outlook, SA is now forecast to see 'a R130 billion movement' in nominal GDP growth for 2025 – essentially less-than-expected growth.
'In 2026/27, the impact would be around R161 billion, and in 2027/28, around R178 billion … The cumulative effect [of the lower GDP growth] is some R466 billion,' Pieterse later added.
'Included in this is the fact that we ended up with lower-than-expected GDP growth in the last quarter of 2024 [0.6%, instead of the forecast 0.8%]. Remember that the Q4 2024 GDP outcome was not included in the March budget [it was not released at the time],' he explained.
Source: National Treasury
Pieterse said the lower GDP growth forecast effectively 'pushed up the debt-to-GDP' or debt as a percentage of GDP metric.
'However, for us, the de facto fiscal anchor is the primary surplus … And that is getting better. We believe our fiscal objectives are on track,' he said, echoing Finance Minister Enoch Godongwana.
ALSO READ: Budget 3.0 was not a chainsaw budget, economists say
Pieterse stressed that more focus should be placed on SA's primary surplus and the fact that the forecast budget deficit as a percentage of GDP was still 'intact' at 4.6% for 2025/26.
'As global growth has faltered, South Africa's economic outlook has also weakened, with GDP expected to grow by only 1.4% in 2025. Global risk and economic weakness reinforce the need for us to put our fiscal house in order,' he said in the foreword of the latest Budget Review, tabled with other budget documents in parliament on Wednesday.
'The fiscal strategy remains on course so that government can spend less on debt-service costs and more on critical public services. As per our commitment, government debt will stabilise in 2025/26 at 77.4% of GDP. For the first time since the 2000s, government is consistently running a primary surplus, where revenue exceeds non-interest expenditure,' Pieterse added.
This article was republished from Moneyweb. Read the original here.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The South African
15 hours ago
- The South African
SA cities may get faster flood payouts under new insurance plan
South Africa is exploring whether its major cities should adopt flood insurance to better cope with the growing cost of climate disasters. As reported by Mybroadband , the move follows several years of catastrophic floods that forced the government to divert funds from essential services to cover recovery costs. The insurance being considered is parametric – a type of coverage that pays out automatically when a specific trigger, such as extreme rainfall, is reached. Unlike traditional insurance, it doesn't require a damage assessment, meaning payouts arrive faster when disasters strike. Recent years of damaging floods have underscored the urgency of the discussion, including the 2022 KZN floods, when torrential rains killed at least 459 people in Durban and damaged critical infrastructure. Another example of this would be when Cape Town recorded excessive rainfall in July last year, and tens of thousands of homes were damaged. 'The cost of disasters, both climate-related and other, has risen significantly over the past several years,' South Africa's National Treasury said in a report released Friday. It noted that disaster relief often comes at the expense of key services like education, health, and safety. To explore parametric insurance as part of a wider disaster risk mitigation strategy, the Treasury has partnered with the World Bank. AXA Climate, a division of France's AXA SA, has been commissioned to conduct the study. If implemented, legislative changes would be required to support the new insurance model. Let us know by leaving a comment below, or send a WhatsApp to 060 011 021 1. Subscribe to The South African website's newsletters and follow us on WhatsApp, Facebook, X and Bluesky for the latest news.
IOL News
19 hours ago
- IOL News
South Africa launches Ubuntu Initiative to enhance cross-border infrastructure in Africa
This ambitious initiative echoes one of South Africa's pivotal contributions under the G20 Infrastructure Working Group—including the development of a comprehensive Toolkit aimed at alleviating the primary obstacles to planning, financing, executing, and maintaining cross-border projects. Image: Supplied The National Treasury has partnered with the African Development Bank Group (AfDB) in a collaborative effort to bolster cross-border infrastructure across Africa. Treasury and the AfDB convened the inaugural consultative meeting on the 'South Africa's Legacy Initiative: The Ubuntu Approach' in Pretoria last week. The focus of the meeting was to furnish a platform for representatives from various African nations and regional economic communities (RECs), allowing them to delve deeper into the Ubuntu Initiative. This ambitious initiative echoes one of South Africa's pivotal contributions under the G20 Infrastructure Working Group—including the development of a comprehensive Toolkit aimed at alleviating the primary obstacles to planning, financing, executing, and maintaining cross-border projects. Participants included senior officials from 15 different countries, the African Union Commission, eight recognised AU regional bodies, and the African Union Development Agency - New Partnership for Africa's Development (AUDA-NEPAD). Treasury said participants at the meeting expressed strong support for the Ubuntu Initiative, underscoring its transformative potential. It was suggested that existing capacities and methodologies should be harnessed to prevent redundancy and inefficiencies in implementation. The Ubuntu Initiative will thus aim to integrate and scale established instruments such as the NEPAD Infrastructure Projects Preparation Facility Special Fund and the Infrastructure Consortium for Africa, enhancing operational capacity and credibility with international partners. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Next Stay Close ✕ Ad loading Discussions centred upon the four foundational pillars of the Ubuntu Initiative, each designed to confront the enduring challenges of infrastructure development within the continent: Data: This pillar focuses on updating Africa's cross-border infrastructure gap, particularly in light of the shifting landscape following the COVID-19 pandemic. The initiative aims to provide accurate, current information, essential for guiding evidence-based decisions regarding infrastructural investments. This pillar focuses on updating Africa's cross-border infrastructure gap, particularly in light of the shifting landscape following the COVID-19 pandemic. The initiative aims to provide accurate, current information, essential for guiding evidence-based decisions regarding infrastructural investments. Pipeline Generation: By identifying transformative cross-border projects that warrant prioritisation and financial structuring, this pillar seeks to create a trustworthy and investable project pipeline capable of attracting private financing. By identifying transformative cross-border projects that warrant prioritisation and financial structuring, this pillar seeks to create a trustworthy and investable project pipeline capable of attracting private financing. Governance Concilium: This aspect aims to enhance governance and capacity support through an expert advisory platform, designed to deliver comprehensive capacity-building assistance, ensuring resources are appropriately allocated and efficiently managed. This aspect aims to enhance governance and capacity support through an expert advisory platform, designed to deliver comprehensive capacity-building assistance, ensuring resources are appropriately allocated and efficiently managed. Innovative Financing: The initiative emphasises the acceleration of project implementation via innovative financing models, including public-private partnerships and infrastructure bonds. Multilateral Development Banks are crucial in mitigating risks and rallying private sector investment. Ultimately, the Ubuntu Initiative aspires to unify Africa around a shared vision of accelerating long-term growth through regional collaboration and economic integration. This strategic vision aligns with the Pan-African aspiration for 'an integrated, prosperous, and peaceful Africa, driven by its own citizens, representing a dynamic force in the international arena.' In the wake of this meeting, plans are set to translate the commitments into a concrete action plan, paving the way for the next engagement scheduled alongside the upcoming Infrastructure Working Group meeting in September, which will welcome even broader participation.
The Citizen
a day ago
- The Citizen
Godongwana hits back at Reserve Bank's 3% inflation target
Treasury makes it clear that this is not Sarb's isolated call. Minister of Finance Enoch Godongwana threw shade on the SA Reserve Bank's (Sarb) 3% inflation target announced last week – saying he has no plans to announce a lower inflation target in the Medium-Term Budget Policy Statement (MTBPS). Sarb governor Lesetja Kganyago last week said the bank's Monetary Policy Committee (MPC) now prefers to settle on a 3% inflation target, which would allow repo rates to settle at slightly below 6% from the current 7%. This had created an expectation that the minister would confirm this move. 'It is well-established that policy-making responsibility in this area resides with the minister of finance, working with the President and Cabinet, who sets the inflation target in consultation with the Sarb,' said the minister's office in a statement on Friday. 'The Sarb then operates independently in its pursuit of the inflation target. Added Godongwana: 'As I emphasised during the Budget presentation, any adjustments to our inflation-targeting framework will follow the established consultation process. This means comprehensive consultation between National Treasury, the Reserve Bank, Cabinet, and relevant stakeholders – not unilateral announcements that pre-empt legitimate policy deliberation. 'Any changes to the target, if necessary, will follow this process that I have outlined above.' Godongwana's statement appears to be a nod to trade unions and those on the political left arguing that the Sarb should prioritise economic growth and jobs over lower inflation. Lower inflation creates room for the Sarb to drop interest rates further, thereby stimulating growth and reducing the government's spiralling interest burden. ALSO READ: A 3% inflation target: What it means for SA markets, and will it solve our debt issues? It is 'quite extraordinary' that the Sarb, rather than National Treasury, is lowering the inflation target from 3-6% to 3%, when that policy mandate resides with government, notes Stephen Hanival, chief economist at the Department of Trade and Industry. Sarb's 3% inflation target suggests no further rate cuts for now, but it is 'a positive development if we take a longer-term view,' says Izak Odendaal, chief investment strategist at Old Mutual's Symmetry business unit. 'There will always be inflation cycles, but structurally lower long-term inflation will benefit the South African economy and also support a rerating in its financial markets.' Gina Schoeman, chief economist at Citibank South Africa, says expectations of a change in the official inflation target are misplaced. 'I think it was incorrect for anybody to expect that just because the Sarb announced their preferred target of 3%, within the official target range of 3-6%, that there would automatically be an announcement of a change in the official range by the time of the MTBPS. 'Sarb did a similar change in 2017, (from) what was then seen as a target of around 5.9% to what it said would be a preferred target of 4.5%. It has effectively done the same thing now, having managed to anchor inflation expectations at much lower levels around 3%. It is clear that with economic reforms moving forward – perhaps not at the pace people would like – comes efficiencies, which means the economy can afford to have a lower preferred [inflation] target.' ALSO READ: What lowering the inflation target will mean for SA Can SA handle a 3% target? The issue of inflation targeting has been the subject of widespread consultation between National Treasury, the finance minister, deputy finance ministers and the Sarb. National Treasury's macro policy review last year said inflation targeting works and the economy would benefit from a lower target. 'Can this economy handle a 3% target? Yes, I believe it can,' says Schoeman. 'Sarb has said it will not try to achieve this immediately, but over a two- to three-year period. 'There will be supply shocks, which is why they have given themselves quite a long runway to achieve this 3% target. What they want to see is a trend towards 3%, rather than the [previous] mid-point of 4.5%.' Odendaal told Moneyweb's Jimmy Moyaha that recent inflation data – excluding administered prices controlled by government-controlled entities such as Eskom and municipalities – put inflation at 4.5%, exactly midway in the 3-6% target range. 'Regulated prices, those that are directly controlled by the government, are running at 9.7% year on year,' said Odendaal. The challenge for SA is to get these regulated price increases, such as electricity and municipal tariffs, into line with price increases elsewhere in the economy. This article was republished from Moneyweb. Read the original here.
