MONETARY POLICY
REVIEW
APRIL 2025
APRIL 2025
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ISSN: 1609-3194
Printed by the South African Reserve Bank
APRIL 2025
Preface
The primary mandate of the South African Reserve Bank (SARB) is to achieve and maintain price stability in the interest of
balanced and sustainable economic growth. In addition, the SARB has a complementary mandate to oversee and maintain
financial stability.
Price stability helps to protect the purchasing power and living standards of all South Africans. It provides a favourable
environment for investment and job creation and supports international competitiveness. The goal of price stability is quantified
through an inflation target, which is set in consultation with government. The target is a band of 3–6%, which has been in
place since 2000.
The SARB has full operational independence. Monetary policy decisions are made by the SARB’s Monetary Policy Committee
(MPC), which is chaired by the Governor and includes the deputy governors and other senior officials of the SARB.
The inflation-targeting framework is flexible, meaning that policymakers will seek to look through temporary shocks, thereby
avoiding excessive volatility in interest rates and economic output. The MPC takes a forward-looking approach to account for
the time lags between policy adjustments and economic effects. MPC decisions are communicated at a press conference at
the end of each meeting, accompanied by a comprehensive statement.
The Monetary Policy Review (MPR) is published twice a year and is aimed at broadening the public’s understanding of
the objectives and conduct of monetary policy. The MPR covers domestic and international developments that affect the
monetary policy stance.
The MPR is presented by senior officials of the SARB at Monetary Policy Forum meetings held at major centres across South
Africa in an effort to develop a better understanding of monetary policy through direct interactions with stakeholders.
Questions about the publication may be directed to Marlene Hugo at
APRIL 2025
Contents
Watch your step

Boxes


APRIL 2025
Watch your step
Executive summary and
overview of the policy stance
Headline inflation cooled markedly in the second half of 2024,
pulling the average for the year down to 4.4% from 6.0% the
year before. Lower fuel, food and core price inflation improved
the outlook and helped inflation expectations ease significantly.
The Monetary Policy Committee (MPC) cut rates by 50 basis
points to 7.5% in the six months from October 2024 to March
2025 (the review period). Headline inflation is projected to
average 3.6% this year and to revert to around the 4.5% target
midpoint from 2026. However, inflation risks remain, and
high global economic uncertainty has reduced confidence
in the medium-term inflation outlook. Global macroeconomic
risks have heightened amid tariff increases and geopolitical
tensions, while inflation has still not fallen to pre-pandemic
levels. Services inflation in major advanced economies remains
above target rates and policy rates are likely to remain higher
for longer. Regarding domestic output, despite the downside
risks, ongoing reforms in the energy and logistics sectors, along
with improvements in household real disposable income, are
forecast to lift growth to 1.7% this year, rising to 2.0% by 2027.
Global economic developments
Global headline inflation continued to ease from its 2022 peak
of 8.6%, decreasing to 6.7% in 2023 and 5.8% in 2024. For
2025, global headline inflation is forecast to be 4.2%, with
a further decline to 3.5% in 2026.1 The trajectory of global
inflation has been shaped primarily by moderating food and
fuel prices, while global supply chains and shipping costs
continued to stabilise. Restrictive monetary policy also cooled
price pressures, especially in core goods, by bringing demand
and supply into better balance. However, the global headline
inflation outturn for 2024 was 0.4 percentage points higher
than projected in the International Monetary Fund’s (IMF)
October 2024 World Economic Outlook (WEO), and forecasts
for 2025 have been volatile. The disinflation process has clearly
slowed, the question is whether it has stalled entirely and is at
risk of reversal.2
Inflation remains above the targets of most major advanced
economies. Robust services consumption demand and strong
wage growth from tight labour markets have underpinned
persistence in services price inflation. Meanwhile, declining
inflation and interest rate cuts have boosted real household
spending power and, together with sustained government
spending, have supported demand growth. Some emerging
1 International Monetary Fund’s (IMF) World Economic Outlook (WEO)
Update, Washington DC: IMF, January 2025.
2 IMF, WEO, Washington DC: IMF, October 2024.
Percentage change over 12 months

Headline and core inflation


Core

Headline

Sources: Stats SA and SARB

3–6% inflation target band
Midpoint

Percentage change

Global inflation
Source: IMF

Global inflation

2010–19 average

Oct 2024 forecast

APRIL 2025
market economies, including Brazil, have also grappled with
strong demand-driven inflation pressures, despite tighter
monetary policy settings.
Moving beyond demand and supply challenges to inflation,
global disinflation faces new obstacles. Escalating trade
tensions and geoeconomic fragmentation, reflected primarily
in rising tariffs, have raised global economic policy uncertainty
to levels last seen during the COVID-19 pandemic. The risk of
disruptions to global supply chains and broader trade policy
uncertainty have increased sharply, offsetting the cooling
effects of weaker job growth on inflation. For the first time
in several years, the risk that disinflation at a global level will
stall, if not reverse, has increased sharply. As a consequence,
market views of risk and short-term rate expectations have
shifted higher. Recession risk has, however, also increased, as
higher tariffs on global trade also carry the potential for much
weaker economic growth.
With inflation stubborn and new risks emerging, central
banks have moved cautiously. The United States (US) Federal
Reserve (Fed) and the Bank of England (BoE) have cut rates by
100 basis points and 75 basis points respectively so far, much
less than anticipated at the time of the previous Monetary Policy
Review (MPR). The European Central Bank (ECB) has lowered
rates more, given slow growth and better inflation outcomes.3
Japan has been an exception among the major economies,
raising rates by a cumulative 60 basis points since March 2024
as inflation finally returned after decades of deflation.
Across emerging markets, restrictive monetary policy, less
labour market pressure, and subdued food and fuel price
increases have also resulted in better inflation outcomes. These
factors have enabled emerging market central banks to ease
rates but they have, on average, cut rates less than advanced
economies, reflecting greater volatility in inflation. Some
economies, in particular Brazil and Russia, have hiked rates
amid signs of de-anchoring inflation expectations. Meanwhile,
rates in South Africa have been reduced by 75 basis points
over the past year as inflation and inflation expectations have
moderated, with a relatively benign medium-term outlook.
The slower pace of disinflation around the world reflects
both near-term factors, such as macroeconomic policy
settings, and longer-term drivers, such as demographics and
productivity growth.4 Together they help shape how central
3 The ECB has lowered rates by a cumulative 150 basis points since
June 2024. Market-implied rate expectations in October 2024
suggested the Fed would cut rates by a cumulative 275 basis points
by December 2025 and the ECB by a cumulative 200 basis points
by September 2025.
4 See I Schnabel, ‘No longer convenient? Safe asset abundance and
r*’, Speech by Isabel Schnabel, Member of the Executive Board of
the ECB, at the Bank of England’s 2025 BEAR Conference, London,
25 February 2025. See also G Benigno, B Hofmann, G N Barrau and
D Sandri, ‘Quo vadis, r*? The natural rate of interest after the pandemic’,
BIS Quarterly Review, Basel: Bank for International Settlements (BIS),
March 2024. Others, however, argue that r-star has not risen as its
main drivers are ‘slow-moving’ variables (see M Obstfeld, ‘Natural
and neutral real interest rates: past and future’, National Bureau
of Economic Research Working Paper No. 31949, Cambridge:
National Bureau of Economic Research (NBER), December 2023).
US
UK
Eurozone
Japan
Brazil
Mexico
South Africa
Indonesia
India
Poland
Per cent
Ex ante real interest rate and neutral estimates
Sources: Bloomberg, IMF, various central banks and SARB
Advanced economies
Emerging markets

Ex ante real rate

Neutral estimates
-3

US

UK

Eurozone

Japan
Per cent

Policy rates in advanced economies*
Sources: Bloomberg and central banks

* Dotted lines indicate forecasts as at Oct 2024
Forecast
-1

Index
2000 2003 2006 2009
2012 2015
2018 2021 2024
Economic and trade policy uncertainty
Source: S R Baker, N Bloom and S J Davis, ‘Measuring economic

policy uncertainty’, The Quarterly Journal of Economics 131(4),

2016, pp 1593–1636

Trade policy uncertainty

Economic policy uncertainty

APRIL 2025
banks think about the neutral level of interest rates and assess
policy settings in relation to them. Given extraordinarily high
uncertainty and new risks to inflation, central banks will likely
remain data-dependent and expand the use of scenarios to
understand alternative economic paths and to assess risks.
Despite the shifting balance of inflation risks, modest policy
adjustments by major central banks are still expected this
year. Nevertheless, rates are likely to remain above their prepandemic levels for longer, as central banks look to settle and
anchor inflation at targets.
The decline in global inflation over the past year was
accompanied by a modest softening in global growth to 3.2%
in 2024 from 3.3% the year before, sustaining a trajectory
from the post-pandemic recovery.5 However, the fall in
South Africa’s trading-partner growth was much larger, with
economic activity expanding by only 2.5% in 2024, down from
3.1% in the previous year. This sharp decline reflects slower
growth in South Africa’s key trading partners, namely subSaharan Africa (SSA), the eurozone and China.6 The US was
an exception, with the economy expanding by a solid 2.8% in
2024. Nevertheless, recent US high-frequency data suggests
growth could be less robust this year.7 Looking ahead, the
South African Reserve Bank (SARB) projects trading-partner
growth to rebound to 3.1% this year, rising marginally to 3.2%
by 2027.
Risks to global economic activity were tilted to the downside
for much of the past six months, and are now aggravated by
recent developments. Trade tensions are expected to deepen
geoeconomic fragmentation, disrupt supply chains and restrict
market access – dampening private investment, consumption,
and growth. The impact of tariff hikes on global growth and
inflation is potentially large, with estimates ranging widely
depending on how they are implemented.8
Domestic economic
developments and outlook
With the large influence of food and fuel price changes in
global and domestic inflation, South Africa’s headline inflation
has broadly tracked global outcomes. However, domestic
inflation came out somewhat below forecast in the second
half of 2024. After averaging 5.3% in the first six months of
5 IMF, WEO Update, Washington DC: IMF, January 2025.
6 SSA grew by 3.8% in 2024 and the eurozone and China by 0.8%
and 4.8% respectively – well below long-term averages.
7 Recent US sentiment indicators and high-frequency activity data
softened unexpectedly, along with growth expectations, while the
US dollar weakened. Meanwhile, stimulus measures in Germany
(targeted at infrastructure and defence) and China are expected to
boost growth in these economies. See, for instance, BBVA Research,
‘China Economic Outlook’, Madrid: BBVA Research, 13 March 2025.
8 According to the Kiel Institute, a 25% tariff increase on all eurozone
imports to the US could reduce growth in the short term by 0.4 and
0.2 percentage points for the eurozone and US respectively, rising
to around 0.5 and 0.3 percentage points respectively with retaliatory
measures. See Kiel Institute for the World Economy, ‘Trump’s tariff
threats on EU could trigger economic turmoil’. Media release,
Berlin: Kiel Institute for the World Economy, 27 February 2025.
Rest of the countries (26.3%)
Sub-Saharan Africa (22.5%)
China (13.7%)
Japan (5.8%)
Eurozone (22.5%)
US (9.4%)
South Africa’s trading partners, Sep 2024
South Africa’s trading partners, Mar 2025
Per cent
Contributions to trading-partner growth*
-1

Source: SARB
* Weights in brackets


APRIL 2025
the year, inflation decelerated quickly, slowing to below the
lower limit of the target band in October and November, before
edging back into the target band from December. At 3.2% in
February 2025, inflation is presently subdued. Both services
and goods price inflation have softened, with services easing
to 3.8% in February 2025 from 4.4% in September 2024, and
goods moderating to 2.5% from 3.3% over the same period.
The marked deceleration in goods inflation was on account of
lower food price increases and fuel price deflation, reflecting
a stronger rand exchange rate, lower Brent crude oil prices
as well as base effects. Monetary policy also helped slow the
rate of price increases by containing demand at a time when
supply was constrained and curbing second-round effects
from earlier rises in food, fuel and electricity inflation. The
sharply lower inflation readings in the final quarter of the year
helped pull the headline inflation average down to 4.4% for the
full year, from 6.0% in 2023.
Looking ahead, headline inflation is expected to rise gradually
as fuel, food and other inflation components normalise.
Upward price pressures will also emanate from the proposed
value-added tax (VAT) increases of 0.5 percentage points per
year over the next two years. The SARB projects an addition of
0.2 percentage points to headline inflation per year from the
VAT increases. The precise impact of the VAT increases on
inflation will, however, depend on the extent to which sellers
pass on the increases to consumers.9 Meanwhile, unit labour
cost (ULC) growth is expected to remain muted. Similarly,
inflation expectations have eased closer to the target midpoint
and may moderate further, supporting a slower rise in services
inflation. The inflation profile also benefits from a relatively stable
rand exchange rate, less steep electricity price increases than
previously assumed and a lower oil price assumption. Headline
inflation appears little affected by Statistics South Africa’s
(Stats SA) recent adjustment to the consumer price index (CPI)
basket and its weightings.
Overall, headline inflation is projected to average 3.6% this year
before reverting to around the target midpoint over the medium
term. The trajectory of core inflation is broadly similar to that of
headline inflation, although core goods inflation shows a slight
target overshoot in 2026 and 2027 on account of currency
weakness and VAT increases. Other domestic risks include
administered price increases and wage growth in excess of
productivity gains. Risks emanating from the global environment
include tariff increases and heightened global uncertainty
leading to further currency depreciation (See Box 7).
9 Two VAT increases of 0.5 percentage points each are expected to
become effective on 1 May 2025 and 1 April 2026. Each VAT increase
is expected to add 0.2 percentage points to headline inflation over the
12-month implementation period. The 0.2 percentage points estimate
assumes that about three-quarters of the increase will pass through to
prices, in line with estimates of the 2018 VAT pass-through effect. This
estimate does not fully account for possible second-round effects. See
S Nomdebevana, T Janse van Rensburg and D Fowkes, ‘Additional
perspectives on VAT hikes’, South African Reserve Bank Economic
Note No. EN/2018/24, Pretoria: South African Reserve Bank (SARB),
July 2018; and T Janse van Rensburg, E Visser and D Fowkes, ‘The
meat of the matter: quantifying VAT effects’, South African Reserve Bank
Economic Note No. EN/2018/34, Pretoria: SARB, September 2018.


Current year

One year ahead

Two years ahead
Per cent

Inflation expectations: all participants
Sources: BER and SARB

Midpoint
3–6% inflation target band

Percentage change over four quarters

Targeted inflation forecast*

* The bands around the central projection show confidence intervals
of 10%, 30%, 50% and 70%.
Sources: Stats SA and SARB
3–6% inflation target band

Midpoint

-2

Electricity

Food

Fuel

Core

Headline*
Percentage points
Contributions to headline inflation

Sources: Stats SA and SARB
* Percentage change over four quarters

APRIL 2025
Domestic economic activity has been subdued over the past
two years. After a strong COVID-19 rebound to 5.0% in 2021,
output growth slowed to 1.9% in 2022. Economic activity
slowed further to 0.7% in 2023 and to 0.6% last year. The slow
growth largely reflects the marked decline in the performance
of key state-owned network industries, with severe loadshedding and logistical challenges hampering economic
activity and reducing the potential growth rate of the economy.
High production costs and a loss of competitiveness have also
dragged down output growth.
Looking at demand and spending, a decline in imports and
more-robust-than-expected export prices, alongside sustained
but modest household spending, contributed positively. Import
volumes fell more than exports, mainly because of weaker
investment demand and reduced spending on oil, improving
the contribution of net exports to growth. Meanwhile, lower
inflation, the two-pot retirement system withdrawals and
interest rate cuts lifted household consumption spending.
Government spending also supported growth in 2024, albeit
marginally, consistent with fiscal consolidation. Growth in real
gross fixed capital formation (GFCF) was, however, poor. All
components of GFCF detracted from growth in 2024 and
remained well below their 2019 levels.
Looking ahead, household spending is expected to underpin
economic activity in the near and medium term, benefiting from
low inflation and reduced borrowing costs. Two-pot retirement
system withdrawals are expected to continue, although their
impact is likely to diminish over time. However, the tax increases
(VAT and fiscal drag) announced in the 2025 Budget should
moderate growth in household spending.10 At the same time,
ongoing reforms in ports and rail, together with maintenance
by Eskom and transmission system development, should
gradually ease supply bottlenecks and spur investment. After
contracting by 3.7% in 2024, investment growth is expected to
rebound to 2.1% this year and rise to 3.6% by the end of the
forecast period, underpinned by both the public and private
sectors.11 The contribution of government spending to growth
over the medium term is projected to be broadly neutral.
Growth in gross domestic product (GDP) is projected to rise
to 1.7% this year, while potential growth in 2025 is forecast to
strengthen to 1.4%. Actual and potential growth are expected
to converge over the medium term, averaging 1.9% per year.
While the attainment of these growth rates would mark a
significant shift in the economy’s GDP trajectory, they remain
below South Africa’s long-run growth rate of 2.5% and are
far lower than the average for emerging markets of 4.2%.
Domestic growth can be boosted further by adopting policy
measures that permanently lower inflation risk and strengthen
competitiveness.
10 Overall, household spending is expected to increase by 2.0% this year
and to average 1.8% over the outer years of the forecast period.
11 See Nedbank, Nedbank Capital Expenditure Project Listing
2024, Johannesburg: Nedbank, 13 February 2025.

Percentage change
GDP: South Africa versus emerging markets
Emerging
markets
Brazil
Russia
China
India
South
Africa
Sources: IMF and Stats SA

Long-term average (2010–19)
Index: 2019 = 100

Real GFCF

General government

Private sector

Public corporations

Total
Source: Stats SA
Percentage change over four quarters

Real GDP growth*
* The bands around the central projection show confidence intervals
of 10%, 30%, 50% and 70%.
This chart shows seasonally adjusted data, as used in the
Quarterly Projection Model.
Sources: Stats SA and SARB

-2
-1

APRIL 2025
Overview of the policy stance
The MPC lowered the policy rate by 50 basis points over the
review period, bringing it to 7.5%. The rate adjustments are
consistent with the policy rate path implied by the Quarterly
Projection Model (QPM).
Inflation forecasts at the November 2024 and January 2025
MPC meetings were favourable, reflecting muted domestic
price pressures and inflation expectations around the
target midpoint. However, the medium term appeared more
uncertain than usual due to rising global trade tensions and
economic uncertainty. Rand depreciation risk on account
of elevated interest rates or policy reversals, especially in
advanced economies, was also flagged. At the January MPC
meeting, higher prices for food, electricity and water as well
as insurance premiums and wage settlements were noted as
medium-term inflation risks. Some of these risks were captured
and evaluated in forecast scenarios. The MPC found risks to
be balanced at the November 2024 meeting but tilted to the
upside at its January 2025 meeting.
By the March 2025 MPC meeting, some risks flagged in
previous meetings had materialised, including trade tensions
and higher-than-expected public sector wage growth. New
risks included a staggered 1.0 percentage point VAT increase
over two years announced in the 2025 Budget. The mediumterm outlook, however, remained moderate and in line with
previous forecasts. Downward revisions to electricity tariff
increases and oil price assumptions helped pull the headline
inflation trajectory marginally lower.12 Nevertheless, uncertainty
around the inflation outlook from global factors was assessed to
be unusually high. Domestic uncertainties had also increased,
particularly as the 2025 Budget process remained incomplete.
Overall, risks were seen to both sides in the near term, with a
skew to the upside in the policy-relevant medium-term horizon.
Accordingly, the MPC kept the policy rate unchanged at its
March 2025 meeting.
Monetary policy always involves making decisions under
uncertainty, particularly in an environment of rising risks and
a higher long-term inflation-neutral rate. The three successive
rate cuts since the September 2024 MPC meeting have
progressively reduced the degree of policy restrictiveness,
with the inflation-adjusted real rate declining to 3.2% in the first
quarter of this year, from 5.1% in the third quarter of 2024.13
Compared to an estimated real neutral rate of approximately
3.0%, this reflects significant unwinding of policy restrictiveness.
Accordingly, policy is now assessed to be near neutral.
12 Relative to the January forecast, headline inflation is 0.3 percentage
points and 0.1 percentage points lower in 2025 and 2026 respectively
in the March forecast.
13 This is calculated as the nominal policy rate less expected inflation
four quarters ahead.
Per cent

Repo rate
Source: SARB

Percentage change over four quarters

Headline inflation forecasts*
Sources: Stats SA and SARB

* Dotted lines indicate forecasts

Actual

Sep 2024

Nov 2024

Jan 2025

Mar 2025

Midpoint
3–6% inflation target band


Real repo rate

Neutral real repo rate
Forecast
-6
-4
-2

Per cent
Real repo and neutral real repo rates
Source: SARB

APRIL 2025
Conclusion
Rising global tariffs and possible countervailing measures
present risks to the outlook for global growth and inflation,
threatening deeper stagflation. With such high global policy
uncertainty and risks, confidence around how the mediumterm outlook will play out is reduced. Broadly speaking, central
banks will remain ‘cautious and data-dependent’ until clearer
data emerges that increases confidence about the path over
the medium term. In some instances, interest rates are likely to
stay elevated for an extended period.
Exiting the combination of low growth and higher than desired
inflation is never straightforward, particularly where negative
supply shocks abound. The resilience of the South African
economy from external and domestic shocks can be enhanced
by sustaining domestic reform momentum. This entails both
structural reforms to enhance the economy’s productive
capacity and efforts to rebuild fiscal and monetary policy space.
Other important measures include macroeconomic reforms to
bring domestic inflation closer to that of trading partners to
permanently lower inflation risk and improve competitiveness.

Per cent

QPM-implied repo rate versus actual*
Source: SARB

* Dotted lines indicate forecasts

Actual

Sep 2024

Nov 2024

Jan 2025

Mar 2025

Steady state

APRIL 2025
Box 1 Curve flattening: Less inflation and more growth
1 A W Phillips, ‘The relation between unemployment and the rate of change of
money wage rates in the United Kingdom, 1861−1957’, Economica,
New Series 25(100), 1958, pp 283–299.
2 See K Forbes, J Gagnon and C Collins, ‘Low inflation bends the Phillips
curve around the world’, NBER Working Paper No. 29323, Cambridge:
NBER, October 2021. See also C Borio, M Lombardi, J Yetman and
E Zakrajsek, ‘The two-regime view of inflation’, BIS Working Paper No. 133,
Basel: BIS, March 2023; and O Coibion and Y Gorodnichenko, ‘Is the
Phillips curve alive and well after all? Inflation expectations and the missing
disinflation’, American Economic Journal: Macroeconomics 7(1), 2015,
pp 197–232.
3 See A Kabundi, E Schaling and M Some, ‘Estimating a Phillips curve for
South Africa: a bounded random-walk approach’, International Journal of
Central Banking 15(2), 2019, pp 75–100.
4 See R Barnichon and G Mesters, ‘The Phillips multiplier’, Journal of Monetary
Economics 117, 2021, pp 689–705. See also C Loewald, K Makrelov and
E Pirozhkova, ‘The short-term costs of reducing trend inflation in South
Africa’, South African Reserve Bank Working Paper Series No. WP/22/08,
Pretoria: SARB, August 2022.
5 See F Furlanetto and A Lepetit, ‘The slope of the Phillips curve’, Finance
and Economics Discussion Series 2024-043, Washington DC: Board of
Governors of the Federal Reserve System, May 2024.
The Phillips curve posits a short-run trade-off between economic
slack and inflation, suggesting that reducing inflation comes at a cost
to output.1 However, Phillips curves shift over time with changes in
economic conditions and the public’s perception of central bank antiinflation credibility.2 Greater central bank credibility flattens the Phillips
curve, reducing the impact of growth on inflation. When this relationship
is weak, economic agents are said to be ‘rationally inattentive’ to
inflationary shocks, not changing their investment or spending decisions
in response to changes in a more stable inflation rate.
The South African Phillips curve appears to show four distinct changes
in slope. In the early 2000s, inflation expectations were not yet well
anchored, and inflation shocks fed strongly through to inflation.
However, with monetary policy credibility improving quickly, by 2004
inflation expectations had become better anchored and the slope was
flatter – a trend that carried through to 2009. The post-global financial
crisis period (2010–19) showed the flattest average slope.3 Inflation
expectations first became anchored around the upper limit of the target
band but later moved significantly lower following the South African
Reserve Bank’s (SARB) 2017 communication preference for inflation
to be at the 4.5% midpoint. The 2017–19 experience illustrated that
effective communication and healthy credibility reduces the trade-off, as
reflected in the flatter curve.4
After COVID-19, the worsening inflation surge resulted in a deanchoring of inflation expectations and a steeper slope. But the steeper
curve implies that monetary policy can reduce inflation faster and with
limited effects on output – achieving a soft landing.5 Indeed, South
Africa raised rates much less than its peers at the height of the inflation
surge, minimising output costs. As inflation and inflation expectations
re-anchor at the SARB’s preferred midpoint, the slope of the Phillips
curve is again expected to flatten.
Inflation
-6
-4
-2

-8
Implied Phillips curve slopes
2000Q3–2003Q4
2004Q1–2009Q4
2010Q1–2019Q4
2020Q1–2024Q1
Sources: Stats SA and SARB
Output gap

APRIL 2025
Box 2 Scenario use under uncertainty
1 The November 2024 MPC meeting considered a higher administered
price scenario and scenarios that assumed an escalation/de-escalation of
global geopolitical tensions. Similarly, the January 2025 MPC meeting also
considered multiple scenarios, including a global trade war and faster pace
of reform implementation in the domestic economy.
2 In his recent review of the Bank of England’s forecasting framework, former
US Federal Reserve Chair Ben Bernanke recommended greater use of
scenarios to assess risks and reduce the over-dependence of decisions on
the central projection, which may be erroneous.
The Monetary Policy Committee (MPC) regularly employs forecast
scenarios to better understand the risks to its baseline forecasts. Two
such scenarios were considered at the March 2025 MPC meeting.1
The first scenario considered tariffs on South African−United States
(US) trade, while the second explored a weaker US dollar and higher
commodity prices.2
Scenario 1: Tariffs on South African−US trade
Consistent with the tariff rates proposed for other US trading partners,
a 25% tariff increase was modelled on all South African imports into the
US. Three possible sub-scenarios were considered:
i.
The African Growth and Opportunity Act (AGOA) is terminated
without retaliatory tariffs.
ii.
AGOA is terminated alongside the imposition of a 25% tariff on
South African exports.
iii.
Similar to the second sub-scenario, with the addition of a 15%
rand depreciation caused by risk premium spillovers.
Scenario 2: Weaker US dollar and higher commodity prices
This scenario assumed a 5% US dollar depreciation against the
euro and a 10% rise in commodity prices (level shift) throughout the
forecast period
Scenario 1 results*
Variable
Sub-scenario 1 Sub-scenario 2 Sub-scenario 3
AGOA
loss
AGOA loss
plus 25%
blanket tariffs
AGOA loss plus
25% blanket
tariffs plus
exchange rate
depreciation
Total real exports
-0.11%
-0.56%
-0.30%
Exchange rate
–
–
-15.20%
Inflation
-0.01%
-0.04%
0.94%
Nominal repo rate
-0.03%
-0.08%
1.24%
Real GDP
-0.04%
-0.23%
-0.69%
* Average percentage change from baseline
Source: SARB
Scenario 2 results
Variable

GDP
growth
Baseline
1.66%
1.83%
2.04%
Scenario
1.83%
1.90%
1.99%
Inflation
Baseline
3.59%
4.52%
4.54%
Scenario
3.54%
4.32%
4.45%
Nominal
repo rate
(end of
period)
Baseline
7.25%
7.21%
7.26%
Scenario
7.14%
7.13%
7.31%
Source: SARB

APRIL 2025
Global economy: Into
the great unknown
The global economy is confronted with unusually high
uncertainty amid shifting trade policies and elevated
geopolitical tensions. Trade tensions could depress economic
activity and raise supply costs. World economic activity is
expected to increase at a steady pace of 3.3% this year and
the next, with risks tilted to the downside. Inflation also faces
new risks due to the potentially disruptive effects of tariff
hikes on supply chains and trade, while risks related to sticky
services pressures persist. This threatens to stall or reverse
the disinflation of the past two years, achieved on account of
tight monetary policy and favourable price developments in
fuel, food and core goods. Although policy rates are expected
to decline further in major economies, the new risks that have
emerged suggest they will remain higher for longer.
Over the past five years, the world economy has endured a
series of overlapping shocks. It started with the COVID-19
pandemic and its aftermath, including the surge in inflation.
This was followed by Russia’s war in Ukraine (which is partly
responsible for the 2022 inflation surge) and geopolitical
tensions in the Middle East. More recently, global trade tensions
have escalated, raising uncertainty to levels not seen since the
pandemic. These adverse events significantly impacted global
economic activity, with growth remaining below pre-pandemic
levels. Despite these challenges, the global economy expanded
by 3.2% last year – a similar pace as in 2023.
Growth in world economic activity is projected to stabilise at
3.3% in 2025 and 2026, remaining below its pre-COVID-19
average of 3.7%.14 Rising uncertainty is expected to weigh
on activity as firms and households adopt a wait-and-see
approach to investment and spending decisions. Although
weak demand and trade restrictions are expected to hamper
manufacturing, global growth should, nonetheless, continue to
benefit from resilience in the services sector.
Among the major advanced economies, the US’s economic
performance was exceptional last year as its economy grew
above its long-term trend, while most other economies
struggled. After expanding by 2.8% in 2024, the US economy
may again outperform its peers this year, depending on
consumer demand and investment appetite. However, US
tariffs on its major trading partners and potential retaliatory
measures pose downside risks to US economic activity.
Uncertainty around tariff policies, signs of weaker consumer
spending, and declining consumer and business sentiment
have reignited recessionary fears.
14 Unless indicated otherwise, the growth figures reported in this section are
from the IMF’s January 2025 WEO Update.
Percentage change
Jan
Apr
Oct
Jul
Jan
Apr

Evolution of 2025 global real GDP and
inflation forecasts
Source: Bloomberg Consensus


Headline inflation

Real GDP
Percentage change
Global real GDP growth projections*
Source: IMF
2010–19
average

AEs

EMs

World

* Shaded bars and dotted line indicate forecasts
Percentage change
Real GDP growth projections for advanced
economies*
Source: IMF

US
Eurozone
UK
Japan

2010–19 average growth rate
-1

* Shaded bars indicate forecasts

APRIL 2025
In the eurozone, economic activity remains sluggish amid
weak fixed investment and poor manufacturing performance.
Growth in Germany has been weighed down by weak demand
and ailing manufacturing conditions, with the automotive
sector facing challenges from the shift to electric vehicles,
growing competition from China as well as rising protectionism.
Household spending in the eurozone has been muted amid
rising savings; however, easing monetary conditions should
provide some impetus to spending over the medium term.15
Real GDP is projected to expand by a modest 1.0% this year
from 0.8% in 2024, although plans to increase defence and
infrastructure spending across Europe could boost growth
from 2026.
In the United Kingdom (UK), growth is forecast to accelerate to
1.6% this year, as real income gains and declining interest rates
support spending. Japan’s total output is seen to expand by
1.1% this year, underpinned by increased capital investment
and improved consumer spending amid rising wages.
Divergent growth is also evident across emerging markets.
China’s economy is projected to slow to 4.6% this year
from 5.0% in 2024, despite recent fiscal support measures.
Demand remains weak due to the delayed recovery in the
property sector and subdued consumer confidence. China’s
growth outlook remains highly uncertain, with significant
downside risks related to US trade relations. India is expected
to remain one of the fastest-growing economies in the world
this year, expanding at 6.5%. Robust private consumption
and investment underpin the forecast. Meanwhile, in Latin
America, growth is projected to recover only marginally to
2.5% this year, weighed by slowdowns in the region’s largest
economies – Brazil and Mexico.16 Economic activity in SSA is
forecast to rise by 4.2% in 2025, owing to strong growth in
several smaller economies. The larger economies of Nigeria
and South Africa are seen to expand by 3.2% and 1.5%
respectively this year.
Risks to the global growth outlook are tilted to the downside.
Rising trade protectionism and threats as well as geopolitical
realignments could disrupt trade flows. Additionally, debt
levels remain a concern. However, there are also upside risks,
such as a potential ceasefire in Ukraine, which could reduce
geopolitical tensions and put some downward pressure on
commodity prices.
15 See A Bobasu and J Gareis, ‘What explains the high household saving
rate in the euro area?’, European Central Bank Economic Bulletin, Issue
8/2024, Frankfurt: ECB, January 2025.
16 Brazil’s economy is expected to weaken to 2.2% in 2025 from 3.7% in
2024, while Mexico’s economy is forecast to slow to 1.4% in 2025 from
1.8% the year before as consumption and investment growth slow.
Percentage of disposable income

Household savings rates in advanced economies
Sources: Bureau of Economic Analysis, Eurostat and Office for

National Statistics

Eurozone

UK

US
Percentage change
Real GDP growth projections for emerging
markets*
Source: IMF
India
China
Brazil
Russia
South Africa

2010–19 average growth rate
-2

* Shaded bars indicate forecasts

APRIL 2025
Inflation: Uncertainty is the
only certainty
After a sharp deceleration from mid-2022 due to monetary
policy tightening and the unwinding of supply shocks, the
disinflation process stalled somewhat in major advanced
economies during the six-month review period. Persistent
inflation in services prices and still-high wage growth continue
to limit disinflationary momentum, while rising goods inflation
− along with the looming trade tensions − threaten to reverse
these trends. In the US, elevated food inflation has added to
price pressures, slowing the rate of decline in headline inflation.
In the eurozone, however, disinflation remains largely on track
amid relatively softer demand and a stronger euro as well as
lower energy prices. Japan, however, has been experiencing
rising inflation, owing to a depreciated yen and a relatively tight
labour market.
Across many advanced economies, labour markets have
become less tight, which is expected to exert more
disinflationary pressure to inflation as labour market slack
increases. Vacancy rates have declined closer to pre-COVID-19
averages. In the US, monthly payrolls have been moderating
since the beginning of the year, while the unemployment rate
has edged higher. Although layoffs of US government workers
are likely to add to the cooling job market, this could be offset
by changes in immigration policies.17
Tariff-related price increases remain a major upside risk to
the global inflation outlook. In the US, for instance, tariffs
are estimated to push personal consumption expenditure
(PCE) inflation up by between 1.0 and 1.2 percentage points
in the short term.18 In those sectors where US importsubstitution is low – such as recreational goods, education and
communication goods, and household furnishings – tariffs are
expected to result in higher goods prices. Indeed, US shortterm inflation expectations have been revised higher, even as
longer-term forecasts have remained stable.19 Similarly, in the
eurozone, short-term inflation forecasts have shifted higher,
while longer-term expectations remain anchored at 2.0%.
17 In February 2025, US employers announced 172 017 layoffs, a 245%
increase from the previous month and the highest monthly increase
since July 2020, according to US Challenger, Gray and Christmas. The
government sector had the most layoffs, accounting for 36% of the total.
18 The Budget Lab at Yale, ‘The fiscal, economic and distributional
effects of 20% tariffs on China and 25% tariffs on Canada
and Mexico’, New Haven: Yale University, March 2025. The
analysis suggests that recent tariff increases could raise the US
effective tariff rate to its highest level since the early-1940s.
19 The University of Michigan’s 3- and 5-year inflation projections have risen
steadily, while 10-year-ahead forecasts have been stable. Survey-based
forecasts of 1-year-ahead US inflation have also been revised higher,
while 10-year-ahead projections have remained stable near 2.0%.
Ratio

Job vacancies per unemployed person
Sources: Bureau of Labor Statistics, Eurostat and Office for

National Statistics


US

UK

Eurozone
Percentage change over 12 months
Feb
Mar Apr
Sep
Oct
Dec
Jan
Nov
Jul
Aug

Evolution of headline inflation forecasts in
advanced economies
Source: Bloomberg


UK

US

Eurozone

Japan
Percentage change over 12 months

Headline and core inflation in emerging markets
and advanced economies
Sources: Haver and SARB

EM headline

EM core

AE headline

AE core

APRIL 2025
Disinflation has continued in emerging markets, despite
currency weakness and other idiosyncratic factors. In Brazil
and Mexico, however, disinflation appears to be stalling,
mainly due to expansionary fiscal policy and large currency
deprecations. Across emerging Asia, inflation has also slowed
appreciably and is expected to remain very low in China.20 The
outlook, however, remains subject to significant uncertainties
surrounding tariffs and other policies from major economies.
Monetary policy to remain cautious
Inflation in many countries continues to face upside risks,
owing to weak productivity growth, currency volatility and
trade fragmentation. Elevated debt levels add to currency risk
and thus inflationary pressures. These factors, along with the
rise in short-term inflation expectations, highlight the fragility of
the current disinflation process. The highly uncertain economic
environment implies wider uncertainty bands around inflation
projections and suggests a more cautious approach by central
banks in setting monetary policy over the coming months.
Central banks could face a difficult combination of upside
inflationary pressures and weaker economic activity.
Most central banks have been easing policy over the past year,
with rate cuts expected to continue in 2025, but the scope for
easing has narrowed. Inflation uncertainty has risen, presenting
central banks with a challenge similar to that posed by the
supply shocks of 2021: determining whether the tariff-induced
price increases will be transitory or persistent. Typically, tariff
hikes have short-lived effects. However, heightened uncertainty
around tariff policies and the fact that many economies have
not yet returned to the ‘low-inflation regimes’ that preceded the
COVID-19 pandemic could push inflation expectations higher.
Global economic growth is expected to remain below preCOVID-19 averages, while the trajectory of inflation has
become less certain. Risks to global growth have risen, with
tariff increases and heightened uncertainty expected to lower
it further. Amid extreme levels of uncertainty, many central
banks have held policy rates steady in recent months as they
look to incoming data to better assess risks.
20 In February 2025, Indonesia experienced a shift from inflation to
deflation following massive discounts (50%) in electricity bills which
were implemented to stimulate the economy. See Reuters, ‘Indonesia
sees first deflation reading in more than two decades’, 3 March 2025.
Number of central banks
Central bank policy rate decisions
-30
-20
-10

Sources: Central banks and SARB

Tightening

Loosening

Net
Loosening

Tightening

APRIL 2025
Box 3 Does artificial intelligence imply

stronger growth?
Global growth has averaged 3.3% over the past three years, which
is below the 3.7% average of the 2010–19 period. Medium-term
growth forecasts by the International Monetary Fund (IMF), a proxy
for global potential growth, remain around the 3.0% level up to 2029,
while the World Bank sees potential growth averaging only 2.2% from
2022 to 2030.1, 2 In the absence of major productivity shocks, this
modest performance may well become the new normal, with the world
economy revisiting secular stagnation.
Secular stagnation was attributed to reduced capital accumulation
rates following the global financial crisis and a slowdown in total factor
productivity amid allocative inefficiencies, including weak growth in
labour supply and lower participation rates.3
Productivity differences explain the differences between national
economies. For example, the United States (US) has shown exceptional
productivity growth over time, reflecting robust within-sector gains
driven by higher labour turnover and investment in digital technologies.4
Industry-level data shows strong gains in data processing, internet
broadcasting and some sectors (such as e-commerce) that may
have benefited from early artificial intelligence (AI) implementation.5
US productivity growth has, however, slowed in recent quarters,
suggesting that part of these gains may have been cyclical.
1 See IMF, ‘Chapter 3: Slowdown in global medium-term growth: what will it
take to turn the tide?’, International Monetary Fund World Economic Outlook,
Washington DC: IMF, April 2024.
2 S K Celik, M A Kose and F Ohnsorge, ‘Potential growth prospects: risks,
rewards and policies’, World Bank Group Policy Research Working Paper
No. 10355, Washington DC: World Bank, March 2023.
3 The IMF (op. cit.) estimated a 0.6 percentage point drag on total factor
productivity growth from across-firm productivity, as labour and capital
markets became less efficient at allocating resources to higher-productivity
firms. The US appeared to be a notable exception.
4 See M Dao and J Platzer, ‘Post-pandemic productivity dynamics in the
United States’, International Monetary Fund Working Paper No. WP/24/124,
Washington DC: IMF, June 2024. See also A D da Silva, P D Casola,
R Gomez-Salvador and M Mohr, ‘Labour productivity growth in the euro
area and the United States: short and long-term developments’, European
Central Bank Economic Bulletin: Issue 6/2024, Frankfurt: European Central
Bank, September 2024.
5 See B Hobijn, M Mestieri, N Werquin and J Zhang, ‘Quarterly industry-level
labor productivity data for the US’, Economic Perspectives No. 1, Chicago:
Federal Reserve Bank of Chicago, 2025. Since the fourth quarter of 2019,
the data has shown average annual productivity growth of 10.4% in data
processing and internet publishing, 7.7% in computer systems design, 6.2%
in information and 4.5% in ‘other retail’ (including e-commerce).
Per cent

Five-year productivity growth rates
Source: World Bank

Emerging market Europe

East Asia

South Asia

Latin America

Sub-Saharan Africa
-2

Index: 2019Q1 = 100

Productivity levels in advanced economies
Sources: Bureau of Labor Statistics, Eurostat and

Office for National Statistics

US

UK

Eurozone

APRIL 2025
Recent analyses suggest that AI could substantially increase global
potential growth by making production processes more efficient and
accelerating innovation. However, the technology is still in its early
stages, with the projected impacts of AI ranging from ‘moderate gains’
to ‘explosive growth’.6, 7 In the meantime, uncertainty over the true
long-term growth benefits of AI may trigger ‘boom-and-bust’ cycles in
equity markets, similar to what other highly transformative technologies
(railways, the internet) did in the past.8
What is clearer is that the growth benefits of AI will vary across countries
depending on their AI preparedness and resources disparities. AI
adoption is lagging in most emerging markets, partly due to a lack
of capital and skills.9 To bridge these gaps, emerging economies
need to increase investment in research and development and digital
infrastructure as well as boost education spending, particularly those
leaning towards AI skills.10 Policy efforts should also focus on lowering
administrative obstacles and regulatory burdens.11 AI preparedness and
adoption are among the priority areas for discussion this year in the
Group of Twenty (G20), currently chaired by South Africa.
6 See J Solomons, S Pulumo, K Mphahlele and T Mononyane, ‘The
macroeconomic implications of artificial intelligence’, South African
Reserve Bank Economic Note No. EN/2025/04, Pretoria: SARB.
7 See for example A Cline, J Kahn and R Rich, ‘Is high productivity
growth returning?’, Federal Reserve Bank of Cleveland Economic
Commentary, Cleveland: Federal Reserve Bank of Cleveland,
January 2025.
8 See Deutsche Bank Research, ‘Capex booms and busts through history’,
Cross-discipline Thematic Research, 27 February 2025.
9 According to E Humeau and T Deshpande, ‘AI for Africa: use cases
delivering impact’, AI represented only a small proportion of Africa’s
US$4 billion in total funding for tech startups in 2023.
10 L Signe, ‘Chapter 5: leveraging AI and emerging technologies to unlock
Africa’s potential’, Brookings Institution Foresight Africa 2025–2030,
Washington DC: Brookings Institution, January 2025.
11 M Draghi, ‘The future of European competitiveness Part A: a
competitiveness strategy for Europe’, European Commission
Report, Brussels: European Commission, September 2024.
Index
AI preparedness index

Source: IMF
Emerging markets
Advanced economies
US
Germany
UK
France
Portugal
Spain
Italy
Czech Republic
China
Poland
Chile
Hungary
Russia
Mexico
Brazil
Philippines
South Africa
India
Colombia
Indonesia

APRIL 2025
Global financial markets:
Tariffs upend markets
After relative calm in financial markets in the five months since
October 2024, large shifts in global trade policy and increased
risks of weaker global economic growth have upended
markets. Equities plunged at the start of April, as the fallout
from the more-aggressive-than-expected US tariffs fuelled a
flight to fixed-income instruments. The US dollar weakened as
investors reduced positioning in US dollar assets, but risk-off
sentiment also spread through to emerging market assets and
currencies, resulting in abrupt depreciation and higher emerging
market bond yields. South African government bond yields also
increased, and the curve steepened, reflecting the unfavourable
global and domestic news-flow. The rand weakened sharply
to a one-year low at the start of April, reversing gains made in
the first quarter of this year. Amid elevated global and domestic
uncertainty, local markets now see lower interest rates later this
year, although it is likely that these expectations will exhibit high
volatility for some time.
The future is not what it used to be
Following a strong start to 2025, economic uncertainty has
progressively weighed on consumer and corporate confidence
as well as global growth prospects. Technology stocks,
the main beneficiary of investor sentiment in 2024, were
increasingly perceived to be over-valued, while enthusiasm
for other sectors remained relatively muted. With confidence
weaker, a big market rout was triggered at the start of April
after the US announced more-aggressive-than-anticipated
tariff increases on all imports, followed by retaliatory measures
by China. The S&P 500 Index slumped by over 17% from its
February peak as of the first week of April 2025. The STOXX
Europe 600 Index fell by a similar magnitude from a record
high in March – reached at a time when European Union
government leaders’ committed to increase spending on
defence and infrastructure.
The stronger sentiment in January 2025 resulted in the
10-year US government bond yield climbing to a high of 4.8%
as markets scaled back anticipated interest rate cuts by the
Fed. Elsewhere, UK gilt, German bund as well as peripheral
bond yields all rose in the five months to March this year. The
10-year Germany bund yield increased by 70 basis points
between October 2024 and March 2025, driven largely by
higher public borrowing and expected economic growth,
rather than higher inflation expectations. The sharp reversals
in markets in April have changed expectations, with stronger
inflation and much weaker economic growth seen as distinct
possibilities. As a result, bond yields declined notably.21
21 By early April 2025, the focus had shifted to downside economic
growth risks, causing the yield on the 10-year US Treasury note
to drop by around 80 basis points relative to its January peak.


Per cent
Ten-year German bund decomposition

Source: Bloomberg

Expected inflation
Real rate
Nominal rate

Jul
Jan
Apr
Oct
Jul
Jan
Jan
Apr

Apr
Oct

UK

US

Germany

Per cent

Selected advanced economies’ bond
yield curves*
Source: Bloomberg
Years to maturity
* Dotted lines indicate data as at Oct 2024

Cumulative per cent returns

-15
-10
-5

Equity market performance
Source: Bloomberg
Oct
Nov

Jan
Dec
Feb
Mar
Apr

STOXX Europe 600

FTSE 100

JSE All-Share

S&P 500

CSI 300

APRIL 2025
Index: Oct 2024 = 100

Bond returns
Sources: Bloomberg and FTSE

Oct
Nov
Jan
Dec
Feb
Mar
Apr

FTSE Emerging Markets Government Bond Index

FTSE World Government Bond Index
Index
US$/oz

Gold price and US dollar index
Source: Bloomberg

US dollar index (DXY)

Gold (right-hand scale)

Advanced
economies
Emerging markets
HUF
PLN
BRL
MXN
KRW
CNY
INR
ZAR
ARS
TRY
JPY
CHF
EUR
GBP
CAD
Per cent
Selected foreign exchange performance
versus the US dollar
Source: Bloomberg
Past six months
Year to date
-12
-8
-4

For the six months prior to the US tariff announcement,
emerging market bonds had performed better than their
advanced economy counterparts, reflected by higher total
returns as well as 10 successive months (up until February) of
non-resident net portfolio inflows.22 The tariff announcement
of 2 April triggered a broad sell-off of emerging market assets,
but among them, idiosyncratic risks have generated further
downturns. South African and Turkish bonds have, in particular,
underperformed relative to Brazilian and Mexican peers, partly
reflecting domestic factors.
Dollar weaker, gold stronger
The post-pandemic era saw the US economy outperform
other advanced economies. China’s growth model came
under increased strain, while India’s strengthened. Higher
debt levels and less growth weighed on other emerging
economies. This pattern was broadly reflected in currencies.
In more recent months, these trends have changed, in part
reflecting the increased concerns about the sustainability of
growth. After rising strongly against most currencies since
October 2024, the US dollar reached a multi-year high in
January 2025, before declining sharply into March.23, 24
Most advanced economy and emerging market currencies
strengthened against the greenback in the first quarter of 2025.
However, the tariff turmoil has reignited currency depreciations
for some emerging markets, reversing the earlier gains.
Advanced economy currencies such as the Japanese yen,
Swiss franc and euro benefited from a flight to safety. Even the
Canadian dollar, which had come under pressure over the past
six months, managed to recoup some losses.
One part of the rise in certain asset prices up to January
this year reflected increasing concern about equity market
valuations, in particular whether growth in technology
companies was sustainable. This gave rise to stronger gold
prices as some investors sought safe havens, backed up by
increased purchases by central banks. The gold price rose
to a record nominal high of over US$3 000 per fine ounce
in early April. Another trend emerged in speculative assets,
with the price of Bitcoin reaching a record high above
US$107 000 in January as a more supportive stance in the
US towards digital assets encouraged retail, speculative and
institutional investors to increase their holdings. However,
similar to the dollar, its price has since declined.
22 According to the Institute for International Finance’s March 2025
Capital Flows Tracker report.
23 The Intercontinental Exchange Dollar Index (DXY) climbed to
its highest level in 26 months, while the Fed’s nominal dollar
index reached a record high in late February 2025.
24 According to the Commodity Futures Trading Commission, speculative
traders, including hedge funds and asset managers, were the least bullish
on the US dollar since October 2024, before the US presidential elections.

APRIL 2025
Despite shifts in confidence and elevated policy uncertainty,
markets now anticipate more rate cuts this year, and more
so for the US, than they did at the start of March, as the
tariff increases are expected to slow growth while adding to
inflationary pressures. However, rate expectations are likely to
remain volatile as the medium-term implications for inflation
and growth are hard to assess. The recent lowering of rate
expectations suggests markets are more concerned about the
trajectory of growth than inflation.
South African financial
market developments
Local factors appear to have driven domestic market
performance, at least during the first half of the review period.
With South Africa’s inflation and inflation expectations easing
significantly, the spread between the 10-year US Treasury
and South African bond yield − often seen as an indicator of
the risk premium of South African debt over ‘safe’ assets −
narrowed to pre-pandemic levels by year-end. A stable political
climate and the unwinding of election-related risks, along with
S&P Global Ratings’ revision of the country’s rating outlook
from stable to positive in November 2024, also supported the
rally. However, the trend has reversed since the start of 2025
due to less favourable domestic and global factors. In addition,
tensions with the US may have added to perceived risk.25
The domestic yield curve has ‘bear steepened’ since
October 2024, making borrowing more expensive for long
term borrowers, including the government.26 This steepening
became more pronounced into early April 2025, reflecting the
global risk-off environment and uncertainties related to the
steadiness of the existing coalition government. Non-resident
investors have supported the domestic bond market, with net
purchases of about R18 billion in South African government
bonds up to the end of March.
After brushing off global trade policy uncertainty to reach a
record high in March 2025, the JSE All-Share Index, similarly to
most other global bourses, came under serious pressure at the
start of April, and declined by over 10% from its peak. Mining
stocks have been a noteworthy outperformer since the release
of the October 2024 MPR, mostly driven by gains in precious
metals prices. However, equities have seen large foreign net
outflows of R74 billion in the first quarter of this year, in part a
reflection of a still muted domestic growth environment.
25 See, for instance, M Gavin, ‘Trump’s misguided policy towards South
Africa’, Council on Foreign Relations blog, 12 February 2025.
26 A yield curve ‘bear steepens’ when longer-term yields rise more than
short-term ones – increasing the spread, while it ‘bear flattens’ when
short-term yields rise faster than long-term ones, resulting in a flatter
yield curve.
Basis points


Market-implied change in policy rate
by end-2025
Source: Bloomberg
Oct
Nov

Jan
Dec
Feb
Mar
Apr

UK

Eurozone

US
Basis points

Apr
Oct
Ten-year US Treasury and South African bond
yield spread
Source: Bloomberg

Jan
Jul
Oct
Apr
Jan
Jan Apr
Jul
Oct
Cumulative per cent returns
JSE indices
Source: Bloomberg
Mining
Industrial
Banking
Retail
All-Share

Oct
Nov
Dec
Mar
Apr
Feb
Jan


APRIL 2025
The rand was volatile over the six-month review period, driven
by global and domestic factors. After benefiting from the US
dollar weakness between January and March this year, the
local currency depreciated sharply at the start of April amid
heightened global economic uncertainty and unfavourable
domestic news-flow. The rand has weakened by around 10%
since October 2024, with a 4.0% depreciation for the year
so far.
Domestic policy rate expectations implied in forward rate
agreements have also shown volatility. After having been
dialed back significantly to just one more rate cut this year, the
dynamics have shifted more recently, with nearly two 25 basis
point interest rate cuts anticipated in six months’ time.
Basis point spread over three-month Jibar

Interest rate projection: 6x9-month FRA
* Indicates market expectations of the change in the policy rate,
starting six months from each point in time
Sources: Bloomberg and SARB

Oct
Nov
Dec
Mar
Apr
Feb
Jan


APRIL 2025
Real economy: Will economic
activity lift off this year?
The domestic economy expanded by 0.6% in 2024. The modest
expansion was underpinned by steady growth in household
spending, with support from government consumption and
the foreign sector. Investment detracted from total output
last year. On the production side, activity was driven by the
tertiary sector, while the primary and secondary sectors both
contracted. The economy is forecast to expand by 1.7% this
year, buoyed by continued growth in household demand, as
consumers benefit from softer inflation, lower borrowing costs
and two-pot retirement system withdrawals. With business
confidence on the mend, some recovery in fixed investment
is anticipated this year. Looking further ahead, real GDP and
potential growth are both projected to rise to 2.0% by the end
of the forecast period, conditional on further improvements in
the supply of electricity and logistical services.
Recent economic developments
South Africa’s annual growth rate stood at 0.6% in 2024, slightly
down from 0.7% in 2023, highlighting the economy’s ongoing
struggle to escape its low growth environment. Despite a
sustained improvement in electricity supply and some signs
that logistical bottlenecks are beginning to ease, the recovery
in economic activity has been sluggish. This mostly reflects the
overhang from prolonged supply-side constraints.27 Expansion
in production has also been hampered by ongoing industry
challenges, including muted global and domestic demand as
well as a loss of competitiveness.
As in previous years, sectoral performance was mixed.
Economic growth was again led by the tertiary sector, despite
the transport and trade sectors contracting.28 The finance
industry, which accounts for nearly a quarter of total GDP,
was the main contributor to growth in the second half of 2024,
expanding by 4.0%. The trade sector’s output was flat in the
second half of the year, after contracting markedly in the first
half of the year.
27 See A Khoza, K Morema, M Mofokeng and M Tshenkeng, ‘Will GDP
firmly lift from supply-side improvements or is the economy scarred?’,
South African Reserve Bank Economic Note No. EN/2024/22,
Pretoria: SARB, December 2024.
28 The sector grew by 1.2% year on year in the final six months of
2024, contributing 0.9 percentage points to GDP growth.
Percentage change
Real GDP growth


Sources: Stats SA and SARB

Annual GDP growth

Long-term average (2010–19)

Finance
Community
Manufacturing
Other*
Agriculture
Trade
Mining
Total gross value added

Index: 2019 = 100
Real GDP by sector
* Includes construction, electricity and transport
Source: Stats SA

APRIL 2025
The primary and secondary sectors both detracted from GDP
growth in 2024, with the former subtracting the most.29, 30 Modest
field crop harvests following the 2023–24 mid-summer drought
negatively affected agricultural performance in the second
half of the year. Meanwhile, total mining production remained
weak despite improved electricity supply. South African gold
miners were unable to fully capitalise on the record-high gold
prices partly due to structural headwinds, including high energy
and operating costs as well as lengthy permitting processes
for exploration.31 A plethora of factors also continued to weigh
on production in mining, manufacturing and other activities.
Output growth remained constrained by logistical challenges
in ports and rail, muted demand and reduced competitiveness
due to high input costs, skills shortages and low investment.32
Data from Stats SA suggests that the labour market has
recovered fully from the pandemic shock in 2020. However,
employment growth in the past two years has been muted,
in line with the sluggish output growth during this period.
While the Quarterly Labour Force Survey (QLFS) indicated
some modest employment gains in the second half of 2024,
the Quarterly Employment Statistics (QES) data pointed to a
contraction.33 This discrepancy may stem from differences in
sampling approaches, with the QLFS sampling households,
while the QES samples non-agricultural enterprises. However,
when considering the SARB’s linked employment series –
which is based on the Stats SA QES data – the post-COVID-19
recovery in employment is more subdued – consistent with a
broadly flat profile of real total employee compensation.
Household consumption increased by 1.8% in the final six
months of 2024 compared to a year earlier. Spending benefited
from improving household real disposable income as inflation
declined and interest rates were cut, with the expectations of
29 The primary sector shrunk by 1.8% year on year in the second half
of 2024, mostly driven by agriculture which contracted by 5.1%.
Growth in the mining sector was flat (0.1% year on year) during the
last six months of 2024. On a quarter-on-quarter basis, the sector
contracted by 0.2% in the fourth quarter, following an increase
of 0.8% in the third quarter. See T Liebenberg, ‘AgriSA highlights
positive developments in agricultural sector amid mixed fortunes in
Q3 2024’, Media release, Pretoria: AgriSA, 3 December 2024.
30 All the secondary sub-sectors contracted in the fourth quarter of 2024,
on a quarter-on-quarter basis. The manufacturing sector contracted by
0.6% after a 0.3% expansion in the third quarter; the construction sector
fell by 0.4% following an increase of 0.8% in the third quarter, while
electricity contracted by 1.4% in the fourth quarter after growing
by 1.3% in the third quarter.
31 See P Masilela, ‘Exploration: key to South Africa’s growth’,
Mining Review Africa, 31 January 2025.
32 See Minerals Council South Africa, 2023 Comprehensive Facts and
Figures Pocketbook, Johannesburg: Minerals Council South Africa,
2024. See also A Fortunato, ‘Getting back on the curve: South Africa’s
manufacturing challenge’, Center for International Development Research
Fellow and Graduate Student Working Paper No. 139, Cambridge: Center
for International Development, Harvard University, November 2022.
33 On a quarterly basis, employment in the QLFS increased by 1.9% and
1.1% during the third and fourth quarters of 2024 respectively, helping
drive unemployment down to 31.9% in the fourth quarter. In the QES,
employment declined by 1.2% and 0.4% during the third and fourth
quarters respectively.
Percentage change over one year
Contributions to real GDP growth in 2024H2
* Includes construction, community services and taxes less subsidies
Source: Stats SA

Total
Other*
Finance
Transport
Trade
Electricity
Manufacturing
Mining
Agriculture
Index: 2019 = 100

Household balance sheet

Real household net wealth

Real disposable income
Source: SARB

Quarterly Employment Statistics

Quarterly Labour Force Survey

Index: 2019 = 100
Formal employment
Source: Stats SA

APRIL 2025
further rate cuts supporting consumer confidence.34 The twopot retirement system withdrawals, which cumulated to roughly
R35 billion by year-end, also played a key role in propelling
household consumption in the final quarter of the year.
By contrast, investment spending disappointed, with capital
expenditure by all organisations and all asset classes still below
pre-pandemic levels. The second half of 2024 saw significant
year-on-year declines of 3.2% in private investment and 5.1%
in public corporation investment, while general government
investment rose by 2.0%. For the full year, total investment
contracted by 3.7%. This poor performance in investment was
at odds with the generally more upbeat business sentiment.
After surging in 2023, reduced spending on embedded
electricity generation, as evidenced by capital goods import
data, was likely among the proximate causes of the drop in
private investment. At state-owned companies, insufficient
market competition and balance sheet strain continued to
weigh on investment.
More broadly, muted demand growth and negative supply
shocks continued to subdue investment appetite. Faced
with these constraints, it is unsurprising that the announced
fixed investment projects in 2024 were mostly related to
replacement capital (61.2%), which dwarfed expansionary
investment (14%).35
Growth outlook
Growth over the medium term is anticipated to be driven
by household spending, with support from investment.
Government spending is expected to be broadly neutral,
while net exports are expected to detract from growth this
year and remain largely neutral from 2026. Further progress in
reducing domestic supply-side constraints would enhance the
contribution of these components to growth.
A low inflation environment, continued withdrawals from
the two-pot retirement system and declining debt-service
costs are expected to improve household finances. Lower
borrowing costs and stronger household balance sheets
should also improve credit demand and affordability, further
boosting consumer confidence. The recovery in employment
and earnings as real economic activity strengthens should
further buoy consumer confidence and incomes. However, the
proposed VAT increases as well as further fiscal drag could
dampen household spending growth. Overall, real spending
by households is projected to grow by 2.0% in 2025, 1.6% in
2026 and 1.9% in 2027.
34 Real household net wealth has increased strongly over the past two years
as growth in the value of financial assets, especially in pension funds
and long-term insurers, outpaced that of liabilities.
35 See Nedbank, Nedbank Capital Expenditure Project Listing
2024, Johannesburg: Nedbank, 13 February 2025.
Percentage change over one quarter


Private sector fixed investment*

Private sector fixed investment

Real GDP (lagged)
* Four-quarter moving average
Source: Stats SA

Household
consumption
Government
consumption
Total investment
Inventories
Percentage points
Contributions to real GDP growth


Sources: Stats SA and SARB
Forecast
* Percentage change
Net exports
Residual
GDP*

APRIL 2025
Investment spending is projected to increase by 2.1% this
year, rising to 3.6% in the outer year of the forecast. Capital
spending is expected to benefit from the implementation of
embedded-generation plans with a capacity of approximately
8 700 megawatts (MW).36 Meanwhile, stronger consumption
demand and improved business confidence should start
to spur private investment beyond the energy space. Public
sector infrastructure investment could complement and
potentially incentivise private sector capital formation, with
National Treasury allocating R1 trillion over the next three
years. However, possible delays in project approval processes
and underspending on public sector investment projects pose
downside risks to the outlook for capital expenditure.
Economic activity is expected to receive additional support
from the foreign sector. Over the forecast horizon, a slower
deceleration in commodity export prices relative to those
predicted in the October 2024 MPR is expected to improve the
terms of trade and thus domestic demand.
Although risks relating to electricity supply remain, as seen
in the short bouts of load-shedding during the first quarter of
this year, the SARB continues to assume that load-shedding
will have no material impact on growth over the medium term.
Logistics reforms should also support the growth outlook, with
government providing a roadmap for private train operator
companies to access the rail network.37
Overall, the SARB forecasts real and potential GDP to
expand by 1.7% and 1.4% respectively this year, reaching
2.0% in 2027. These growth projections remain sensitive to
the full implementation of the ongoing structural reforms in
the energy and logistics sectors as well as the evolution of
the global economy. Tariffs and trade restrictions present
a serious threat to global economic activity, with spillovers
to South Africa.
36 A total capacity of 2 707 MW (1 088 MW photovoltaic, 1 601 MW
wind and 18 MW biogas) is expected to reach commercial operation in
2026, rising to a cumulative 8 681 MW by 2027. See Eskom, MediumTerm System Adequacy Outlook 2025–2029, Johannesburg:
Eskom, 30 October 2024.
37 See Transnet, Network Statement, Johannesburg:
Transnet, December 2024.


Percentage change
Total GFCF

Sources: Stats SA and SARB
Forecast


GDP

Potential
* Dotted line indicates forecast


Percentage change
Real GDP and potential growth*
Sources: Stats SA and SARB

APRIL 2025
Macro balances
The current account and its drivers
The current account deficit narrowed markedly to -0.6% of GDP
in 2024 from -1.6% in 2023. This improvement can primarily
be attributed to a rising trade surplus. Net exports benefited
from higher agricultural and manufacturing exports, while
imports softened due to weak investment demand and lower
oil prices.38 The services, income and transfer account deficit
remained relatively unchanged over the review period. However,
the current account is still forecast to deteriorate over the
medium term as commodity export prices normalise towards
pre-COVID-19 levels, while the recovery in domestic investment
is expected to stimulate imports. The current account deficit
is forecast to average 1.2% (compared to 2.2% in the October
MPR) this year, widening to 2.2% by 2027.
Fiscal balances
The medium-term fiscal framework presented in the
2025 Budget showed a slight deterioration in the fiscal position
compared with last year’s Budget. The ratio of debt to GDP
is now expected to peak 0.9 percentage points higher at
76.2% this fiscal year, driven by a wider main budget deficit.
However, the disappointing GDP growth outturn in the fourth
quarter of 2024 raises the risk of debt levels rising even higher.
This deterioration is partly due to total expenditure, which is
projected to increase by roughly R160 billion over the medium
term compared with previous projections, while revenue
− buoyed by new tax measures − rises by R100 billion.39
Accordingly, the trajectory of the primary surplus is
moderately lower relative to the 2024 Budget. The 2025 Budget
continues to target a rising primary surplus as the key metric
to stabilise debt.
South Africa’s debt is high and is becoming increasingly
costly for the economy as it exerts upward pressure on
the risk premium and the exchange rate. Real long-term
government bond yields remain high and debt-service costs
consume nearly a quarter of total revenue – resources that
could be deployed to support investment and growth as well
as enhance the resilience of the domestic economy. On the
whole, the fiscal position is subject to risks, including possible
support to state-owned enterprises with fragile balance sheets
and lower-than-expected growth.
38 Total agricultural and manufacturing exports increased by 2.7% and
3.3% respectively in 2024, while total imports declined by 4.0%.
39 The Budget proposed a phased-in 1 percentage point VAT hike, along
with fiscal drag (no inflationary adjustment to income tax brackets).
Percentage of GDP
Current account balances


Source: SARB

Trade balance

Services, income and

transfers balance

Current account balance

Forecast


Expenditure

Revenue

* Dotted lines indicate forecast

Percentage of GDP
Main budget components*
Source: National Treasury

R billions
Tax proposals
Source: National Treasury

Specific excise duties

Personal income tax

Value-added tax

New zero rating

Fuel levy

Net impact
-10


APRIL 2025
Conclusion
Despite slowing over the past two years, stronger domestic
growth is expected this year and over the forecast horizon.
The Reuters median growth forecast predicts a 1.7% increase
in 2025, in line with the SARB’s latest forecast, with growth
expected to reach 2.0% by 2027. However, these growth
rates still remain below long-run growth estimates of 2.5%.
Broadening the scope of reforms beyond energy and logistics,
including stabilising public debt and lowering the risk premium,
is key to further unlocking the economy’s productive potential,
bringing it closer to the level of other emerging economies at
around 4.0%.

APRIL 2025
Box 4 So small, yet so consequential for gross
domestic product growth
1 Nearly 3 million cattle were slaughtered in 2016 during a drought-driven
herd reduction. See AgriSA, Status Report on the Current Drought Crisis: A
Raindrop in the Drought. Centurion: AgriSA, February 2016. Also see Red
Meat Industry Services, Red Meat Industry Report: Global and Domestic
Perspective, Pretoria: Red Meat Industry Services, December 2024.
2 Since 2019, South Africa has experienced 10 outbreaks of foot-and-mouth
disease (FMD), ending its previous status as an FMD-free zone without
vaccination. Notably, 2022 marked the first time in the country’s history
that the disease became widespread, with six out of the nine provinces
reporting outbreaks. See Department of Agriculture, Land Reform and Rural
Development, Foot and Mouth Disease Outbreak Report, Pretoria: Department
of Agriculture, Land Reform and Rural Development, 2025, pp 1–9.
3 See Cliffe Dekker Hofmeyr, Alert: Agriculture, Aquaculture & Fishing Sector,
Johannesburg: Cliffe Dekker Hofmeyr, April 2024.
4 See Bureau for Food and Agricultural Policy (BFAP), Perspectives on
Agriculture Performance in Q3 of 2024’, Pretoria: BFAP, December 2024.
5 Producer deliveries declined by 55% in the second quarter of 2022 before
jumping to 38.4% in the third quarter.
Despite its small share (2.5%) in gross domestic product (GDP),
agriculture has had a disproportionately large impact on total GDP
growth in recent years. The rising volatility of quarterly agricultural
gross value added (GVA) over the past few years has contributed to
the increased unpredictability of overall GDP and largely explains GDP
growth forecast errors.
The total output of the agricultural sector is made up of activity from its
three core subsectors, namely field crops, horticulture and livestock.
The field crops subsector (28% of gross income) is the most volatile,
partly reflecting the increasingly changing and unpredictable weather
conditions. Horticulture (28%) and livestock (44%) exhibit significantly
less volatility.
The increased volatility in agricultural output has various sources. Cycles
of droughts and floods have impacted crop yields and led to the death
or slaughter of livestock.1 Severe load-shedding in 2022 and 2023
disrupted farming processes and caused significant losses across all
subsectors.2, 3 Volatility in agricultural GVA has also reflected shifts in
the timing of planting and harvests as well as potential measurement
challenges.4 For example, in 2022, the maize crop was harvested later
than usual due to heavy rains, which shifted a large share of deliveries
to the third quarter.5 By contrast, the drought of 2024 led to an earlierthan-usual maize harvest, with the bulk of deliveries taking place in the
second quarter.
The volatility of agricultural output affects GDP growth forecasts and
subsequently impacts output gap estimates. To minimise distortions to
output gap estimates caused by supply-side volatility in GDP growth,
the South African Reserve Bank frequently adjusts its potential GDP
growth estimates.
Four-quarter rolling standard deviation

Volatility of agricultural GVA

Agriculture

Non-agriculture
Sources: Stats SA and SARB

Agriculture

Other

GDP*
Percentage points
Contributions to real GDP growth
Source: Stats SA
* Percentage change

-3
-2
-1

Horticulture

Livestock

Field crops (right-hand scale)
Index: 2014 average = 100 (both scales)

Agriculture real gross income
Sources: DALRRD and SARB

APRIL 2025
Box 5 Agriculture and inventories drive 2024 growth forecast misses
1 Forecasts are accurate if predictions are close to actual outcomes and unbiased if there is no tendency to over- or underestimate actual outcomes.
2 The standard deviation of quarter-on-quarter growth increased to 0.85 in 2022–24 compared with 0.57 in 2017–19. It is important to note that the
post-COVID-19 period in this case excludes 2021 as the rebound from the low levels of 2020 could skew the results.
3 See Bureau for Food and Agricultural Policy (BFAP), Perspectives on Agriculture Performance in Q3 of 2024, Pretoria: BFAP, December 2024.
4 The SARB projected agriculture to increase by 27.4% in the fourth quarter of 2024, but it grew by 17.2%.
5 The SARB’s one-quarter-ahead root mean square error (RMSE) is 0.5, marginally higher than the Reuters median RMSE of 0.4. Excluding agriculture, the
SARB’s RMSE improves to 0.3.
6 ‘Other’ includes the electricity, construction, trade and community services sectors.
7 Both the SARB and private analysts (Reuters median) overestimated 2024 GDP growth at every MPC meeting. The SARB’s average forecast error – a
measure of forecast bias – was 0.68 (compared to 0.85 for the Reuters median). Similarly, other institutions’ 2024 growth forecasts for South Africa were
also biased on the upside, with average forecast errors of 0.49 for the Organisation for Economic Co-operation and Development (OECD); 0.73 for the
International Monetary Fund (IMF); and 0.94 for the World Bank.
8 The change in inventories detracted a full percentage point from overall growth in 2024.
Gross domestic product (GDP) growth forecasts, along with those of potential growth, help determine the degree of slack in the economy.
Accurate and unbiased growth forecasts support better monetary policy decision-making, all other things being equal.1 This box assesses the
accuracy of the South African Reserve Bank’s (SARB) growth predictions for 2024.
The SARB overestimated GDP growth in 2024. The first in-year forecast in January 2024 had the SARB projecting growth of 1.2% for the year,
against the actual outturn of 0.6%. Much of the difficulty in forecasting GDP reflects increased volatility in key components and the prevalence
of large supply shocks.2 On the production side, the volatile agricultural sector was the largest contributor to last year’s forecast error. In the
third quarter of 2024, agricultural production contracted by 28.8%, well beyond expectations. Subsequent forecast revisions also proved overly
optimistic as data revisions by Statistics South Africa reduced the size of the initial quarterly outcome, but not by as much as expected.3, 4
Excluding agriculture from GDP improves the SARB’s forecast errors significantly, although transport, storage and communication as well as the
grouping ‘other’ were also consistently overestimated.5, 6 By contrast, finance, real estate and business services tended to be underestimated.
Part of the challenge in forecasting these sectors is the absence of relevant high-frequency data. The forecasting difficulty extends to the entire
economics community, as seen in the Reuters median, which shows similarly large GDP forecast errors for 2024.7
On the expenditure side, private investment and the change in inventories were overestimated. Following strong growth of 6.0% and 3.0%
in 2022 and 2023 respectively, private investment was forecast to expand by 2.9% last year, underpinned by spending on renewable energy
projects. However, private investment contracted by 4.1%. Inventories experienced unexpected drawdowns in all four quarters.8 Conversely,
net exports were underestimated mainly due to lower-than-expected imports, in line with overall domestic growth and investment forecast
errors. This slightly offset some of the overestimated components and improved the overall forecast accuracy.

Percentage points
Contributions to the 2024 GDP forecast errors (forecast minus actual)
Sources: Stats SA and SARB
Overestimated
Underestimated
Agriculture, forestry and fishing
Transport, storage and communication
GDP (SARB)
Mining and quarrying
Finance, real estate and business services
GDP (SARB) excluding agriculture
Manufacturing
Other
Q1
Q2
Q3

Q4

APRIL 2025
In conclusion, heightened volatility in agricultural output caused unpredictable swings in realised GDP and explains much of the forecast errors
and bias. As hard data either comes with significant lags or is not available, errors can also stem from the use of near-term projections and
wide-ranging nowcast estimates to determine starting points for forecasts. The Monetary Policy Committee’s use of scenarios and other inputs
help to moderate the influence of challenging forecasting on policy decisions.
-3
-2
-1

4 Percentage points
Contributions to the 2024 GDP forecast errors (forecast minus actual)
Sources: Stats SA and SARB
MPC meetings
Overestimated
Underestimated
Household expenditure
General government and public corporations GFCF*
Change in inventories
GDP (SARB)
General government expenditure
Private business enterprises GFCF*
Net exports
GDP (Reuters median)

Sep
Nov
Jan
Mar
May
Jul
Sep
Nov
Jan
Mar
May
Jul
Sep
Nov
Jan
Mar
May
Jul
* Gross fixed capital formation

APRIL 2025
Price developments: Inflation
in target, but will it stick?
Headline inflation softened markedly in the second half of
2024, falling to 2.8% in October before edging higher to 3.2%
in February this year. The rapid deceleration stemmed from
sharply lower food and fuel inflation that benefited from rand
appreciation and falling oil prices, along with base effects. A
stronger rand, together with monetary policy choices, declining
inflation expectations and subdued ULC pressures, exerted
downside influence on core prices, further pulling headline
inflation lower. Some of these disinflationary tailwinds have
since weakened or reversed, while new risks have emerged.
The SARB expects headline inflation to slow to 3.6% this year
from 4.4% in 2024 before stabilising at the target midpoint from
2026. However, confidence around the medium-term outlook
has reduced significantly due to heightened global trade
tensions and elevated domestic uncertainties.
Oil prices and fuel inflation
Lower oil prices and a stronger rand were key drivers of
headline disinflation in the second half of 2024. The Brent
crude oil price eased to US$80 per barrel in 2024, down from
US$83 per barrel in the previous year. The rand exchange
rate also strengthened appreciably in the second half of
2024. These dynamics contributed to fuel deflation of 0.8%
in 2024. However, the start of 2025 brought some volatility to
oil prices, with a 7.6% month-on-month Brent crude oil price
surge in January followed by a 4.8% decline in February.40
Looking ahead, Brent crude oil prices are projected to benefit
from the expected sustained oversupply of around one million
barrels per day into the medium term, reflecting expectations
of weaker global demand and rising production by OPEC+
members (members of the Organization of the Petroleum
Exporting Countries (OPEC) plus other oil-producing
countries).41 Accordingly, the SARB has lowered its mediumterm crude oil price assumption from US$81 per barrel in the
October 2024 MPR to an average of US$76 per barrel.
Administered price inflation
As a result of falling fuel prices, administered price inflation has
slowed sharply in recent months, moderating from an average
of 8.1% in the first half of the year to just 2.6% in the second
half. Administered price inflation averaged 1.8% over the five
months to February 2025. When excluding the basic fuel
price, which is determined by movements in international oil
40 The January 2025 increase in Brent crude oil prices was spurred by
fears of tighter sanctions on Russia and Iran and colder-than-expected
weather conditions in North America. Concerns surrounding trade
tensions and more subdued global growth, and their impacts on oil
demand, returned in February, however, causing oil prices to recede.
41 See US Energy Information Administration, Short-Term Energy Outlook,
Washington DC: US Energy Information Administration, February 2025.


Headline

Core

Non-core
Percentage change over four quaters
Core versus non-core inflation*
Sources: Stats SA and SARB

Midpoint
3–6% inflation
target band
* Dotted lines indicate forecasts

US$ per barrel
Brent crude oil price forecast evolution*
Source: SARB

* Dotted lines indicate forecasts

Actual

Mar 2024

Nov 2024

Jan 2025

Mar 2025

Brent crude oil price

Average price between

MPC meetings
US$ per barrel
Jan
Apr
Jul
Jan
Oct
Daily Brent crude oil price
Source: SARB

APRIL 2025
prices and the rand exchange rate, administered price inflation
remained exceedingly high at 7.5% in 2024.42 Inflation for this
component is, however, projected to ease to 5.1% by 2027.
Unlike the cyclical nature of fuel prices, electricity price inflation
has continued to exert steady upside pressure on administered
prices. Since 2009, electricity prices have risen more than fivefold, while other administered prices excluding electricity have
roughly tripled. Over the past year, electricity prices climbed by
13.3%, while average price increases in the economy (inflation)
rose by just 4.4%. Another large electricity price increase is
projected for this year.43 Domestic electricity prices have both
the scope and tendency to increase above the inflation rate,
reflecting the need to entice more investment in the sector
and the nature of the regulatory framework, which includes
provisions for cost recovery on diesel usage.44 The SARB
expects electricity inflation to average 11.8% this year, easing
to 6.6% by 2027, but risks are tilted to the upside considering
possible clawbacks related to diesel usage to avert loadshedding.
Inflation for the other components of administered prices,
such as water and assessment rates, remained elevated
in 2024, averaging 8.5% and 7.1% respectively. Historical
underinvestment in water infrastructure and broader concerns
about municipal financial viability have continued to hinder service
provisioning while raising costs, contributing to expectations
that inflation in these components will remain elevated.
Large administered price increases not only affect consumer
inflation but also raise the cost structure of the economy as
most administered components serve as factors of production.
Administered price increases are therefore often passed on
to consumers. Importantly, while administered price inflation
exerts upside pressure on headline inflation, muted headline
inflation simultaneously acts to depress administered price
inflation.45 Administered price inflation can be reduced through
regulatory interventions to ensure price increases are costreflective as well as indirectly by achieving a low and stable
headline inflation on a sustained basis.46
42 Administered components of the fuel price include fuel
taxes, the Road Accident Fund levy and margins.
43 The National Energy Regulator of South Africa (NERSA)
recently approved a 12.74% electricity tariff increase for
the 2025/26 financial year, effective from April 2025, and
increases of 5.36% in 2026/27 and 6.19% in 2027/28.
44 Z Ismail and C Wood, ‘Review of administered prices in South
Africa: The electricity tariff’, Special Occasional Bulletin of Economic
Notes: Special OBEN/23/01, Pretoria: SARB, August 2023.
45 C Loewald, K Makrelov and E Pirozhkova, ‘The short-term costs of
reducing trend inflation in South Africa’, South African Reserve Bank
Working Paper Series No. WP/22/08, Pretoria: SARB, August 2022.
46 See K Walsh, ‘Review of administered prices in South Africa:
Municipal rates and taxes’, Special Occasional Bulletin of Economic
Notes: Special OBEN/23/01, Pretoria: SARB, August 2023.


Petrol

Diesel

Electricity

Education

Percentage points
Contributions to administered price inflation

Sources: Stats SA and SARB
* Percentage change over 12 months

Assessment rates

Water

Other

Administered prices*

Percentage change over four quarters

Electricity inflation forecast evolution*
Sources: Stats SA and SARB

Actual

Sep 2024

Mar 2025
* Dotted lines indicate forecasts
Midpoint

APRIL 2025
Food and non-alcoholic
beverages inflation
Food and non-alcoholic beverages (NAB) inflation fell
significantly in 2024, averaging 4.5% for the year, down from
10.7% in the previous year. This 6.2 percentage point decline
is the largest year-to-year slowdown since 2010. As was
characteristic of non-core components in the second half
of 2024, food and NAB price dynamics benefited from rand
strength. The containment of domestic idiosyncratic shocks
such as foot-and-mouth disease, avian influenza and loadshedding, along with base effects and deflationary global
agricultural commodity prices, also helped spur a more rapid
and broad-based disinflation.
The meat as well as the milk, other dairy products and eggs
components contributed the most to the deceleration in
food and NAB inflation, with both components experiencing
base effect-driven easing as the impacts of avian influenza
worked out of the year-on-year numbers. Cereal products
inflation also eased notably, troughing at 3.7% in November
2024 before ticking up modestly. The turn likely reflected the
pass-through of higher maize prices induced by the 2023−24
El Niño-related drought.
Looking ahead, the SARB expects higher inflation for meat
and cereal products in 2025, at 2.6% and 5.2% respectively.
Rising meat inflation is due to fading base effects and the
expected recovery in the demand for red meat. Meanwhile,
higher white maize spot prices will likely continue to exert
upside pressures on cereal products for the remainder of
the first half of 2025. However, the return of La Niña weather
conditions should support a moderation in price increases in
the second half of this year.
Despite some upside pressures from the large-weight
components (meat and cereals), along with rising global
agricultural commodity prices, the SARB expects overall food
and NAB inflation to remain contained at 3.8% this year, rising
to the target midpoint from 2026. Risks to this forecast include
exchange rate movements and the pass-through effect of VAT
increases.
-2

Meat

Cereal products

Milk, other dairy products and eggs

Vegetables

Sugar, confectionary

and desserts

NAB

Other food

Food and NAB*
Percentage points
Contributions to food and NAB inflation

Sources: Stats SA and SARB
* Percentage change over 12 months

-30
-20
-10

Percentage change over 12 months
Cereal products inflation along the value chain
Sources: SAFEX, Stats SA and SARB

2024 2025

White maize spot price*

Agriculture PPI: cereals and

other crops*

Food PPI: grain mill products

Food CPI: cereal products
* Six-month moving average
Percentage change over four quarters

Food and NAB inflation forecast evolution*
Sources: Stats SA and SARB

Actual

Mar 2023

Sep 2023

Mar 2024

Sep 2024

Mar 2025

* Dotted lines indicate forecasts

APRIL 2025
Core inflation
After remaining relatively elevated in the first half of 2024 when
it averaged 4.7%, core inflation softened in the second half
of the year, averaging 4.0%. For the full year, core inflation
averaged 4.3%, down from 4.8% the year before. Average
annual inflation was dragged lower by a sharp deceleration in
core goods inflation.
Measures of underlying inflation tracked by the SARB,
namely core, trimmed mean, supercore and the persistent
and common component of inflation (PCCI), have shown
substantial cooling in price pressures.47 The fading secondround effects of past shocks, coupled with better balance
between demand and supply in the economy − supported
by previous interest rate increases − have been key drivers
in dampening underlying inflationary pressures.48 Looking
ahead, core inflation is expected to remain subdued at 3.7%
this year, rising to the target midpoint over the outer years of
the forecast period.
After peaking at 6.6% in August 2023, core goods inflation
moderated to reach a low of 2.2% in both January and
February 2025. Disinflation in this component was spurred
by a stronger rand and base effects. Vehicles, along with
several smaller-weight components of the core goods basket,
contributed the most to disinflation. However, the announced
VAT increases and global trade tensions present upside risks.
The SARB projects core goods inflation to average 3.2% this
year and rise to 4.6% by 2027.
47 Over the review period, core inflation averaged 3.6%, trimmed
mean inflation 3.6%, supercore inflation 3.5% and PCCI 4.5%.
48 A Amaral, S de Kock and K Sun, ‘Slowly fading shocks: unpacking
demand- and supply-drivers of PCE inflation’, South African Reserve
Bank Economic Note No. EN/2025/02, Pretoria: SARB, January 2025.

Core goods

Services

Core inflation*
Percentage points
Contributions to core inflation

Sources: Stats SA and SARB
* Percentage change over 12 months

Core inflation

Percentage change over 12 months

Underlying inflation*
Sources: Stats SA and SARB
* Shaded region indicates the range of supercore inflation,
core inflation, trimmed mean inflation and the persistent
and common component of inflation
Midpoint
3–6% inflation target band
Consumer food price inflation (March 2025 forecasts)
Percentage change over four quarters, September 2024 forecasts in brackets

Actual
Forecast
Weight
2014–24
2024Q3
2024Q4
2024*
2025Q1
2025Q2
2025Q3
2025Q4
2025*
Food and non-alcoholic beverages


Milk, other dairy products

* Annual average percentage change
Sources: Stats SA and SARB

APRIL 2025
After remaining subdued since the COVID-19 pandemic,
services inflation shifted higher in 2024, underpinned by
normalising medical insurance inflation. Other large-weight
services components, such as education, also recorded
above-target inflation increases. In contrast, housing
continued to provide downward impetus, having remained
below its long-term average since the pandemic.49
Services inflation eased significantly over the past six
months, declining from 4.4% in October 2024 to a low of
3.8% in February 2025. The moderation was broad-based. At
a macro level, services disinflation benefited from moderating
inflation expectations, subdued wage increases and muted
ULC growth. These forces are expected to continue exerting
disinflationary pressures over the near term, contributing to a
target undershoot in services inflation before it rises towards
the target midpoint in the outer years of the forecast period.
VAT increases and administered prices, however, pose upside
risks to this forecast.
Headline inflation (March 2025 forecasts)
Percentage change over four quarters, September 2024 forecasts in brackets
Actual
Forecast
Weight
2014–24
2024Q3
2024Q4
2024*
2025Q1
2025Q2
2025Q3
2025Q4

Annual average percentage change
**
CPI excluding food, NAB, fuel and electricity
***
Combines actual rentals and owners’ equivalent rent
Sources: Stats SA and SARB
49 See, ‘Box 7: Muted housing inflation but how sustainable?’,
Monetary Policy Review, Pretoria: SARB, October 2024.
Percentage change over four quarters

Services inflation forecast evolution*

Sources: Stats SA and SARB

Actual

Sep 2023

Sep 2024
Midpoint

Mar 2023

Mar 2024

Mar 2025
* Dotted lines indicate forecasts

APRIL 2025

Mar 2025
Per cent

Two-year-ahead inflation expectations:
all groups*
Sources: BER and SARB
Midpoint
3–6% inflation target band
* Shaded region indicates interquartile range
of survey respondents; dotted line indicates forecast
-3
-2
-1

Percentage change over four quarters
Productivity and real wage growth*
Source: SARB

* Dotted lines indicate forecasts

Productivity

Real wage

Medium-term inflation outlook
Over the medium term, the trajectory of core inflation, and
by extension headline inflation, is explained by four factors,
namely inflation expectations, the output gap, ULCs and the
exchange rate gap.
Inflation expectations capture the views of economic agents
about the evolution of prices in the economy. When agents
act based on these views, inflation expectations can influence
inflation. The Bureau for Economic Research’s (BER) policyrelevant two-year-ahead inflation expectations have eased
closer to the midpoint of the target band with signs of reanchoring.50 Given the backward-looking nature of surveyed
inflation expectations, further moderation is expected in the
coming quarters. Inflation expectations are expected to hover
around the target midpoint over the forecast period.
The output gap, which measures the extent of demand
pressures on inflation, is expected to be modestly negative
in the near term but to close over the medium term, implying
broadly neutral inflationary pressures.51 In the absence of
other sources of inflationary or disinflationary pressures,
a closed output gap is consistent with inflation around the
target midpoint.
Inflationary pressures from the labour market surprised to
the downside this past year as expectations of backward
indexation failed to materialise. In the QPM, labour market
inflationary pressures stem from the real ULC gap and nominal
ULC growth. The former captures whether the real wage per
worker, per unit of output, deviates from its productivityaligned (equilibrium) level, while the latter is the nominal
labour cost growth of producing a unit of output. Given
expectations for stronger GDP growth, productivity growth
is forecast to exceed real wages growth over the medium
term, while nominal ULC growth is projected to average 3.5%
over the medium term.52 Together, these dynamics suggest
reduced labour market pressures on headline inflation over
the forecast horizon.
50 Two-year-ahead inflation expectations reached 4.6% in the fourth
quarter of 2024 before ticking up slightly to 4.7% in the first quarter
of 2025. Measures of ‘anchoring’ tracked by the SARB, such as the
dispersion of expectations of the respondents or the sensitivity of inflation
expectations to past inflation, continued to improve throughout 2024.
51 The output gap is projected at -0.2% this year, -0.1% in 2026 and 0.0%
in 2027.
52 Nominal ULC growth is forecast at 3.2% this year, rising to 3.7% in both
2026 and 2027.

APRIL 2025
The rand exchange rate influences medium-term inflation
through its impact on imported inflation and the real marginal
cost of firms. The rand proved to be volatile over the review
period. The starting point for the rand to the US dollar was
R17.73 at the November 2024 MPC meeting but depreciated
to R18.50 by the March 2025 MPC meeting. Meanwhile, the
real effective exchange rate was estimated to have been
undervalued since the end of 2022. Although the real
exchange rate gap has narrowed, implying less inflationary
pressures, the exchange rate is still expected to remain
undervalued throughout the forecast period.
Conclusion
Headline inflation moderated strongly during the second half
of 2024, benefiting from favourable oil price developments, a
stronger rand and easing core price pressures. Monetary policy
has played a role, helping keep demand and supply in better
balance. As these forces dissipate or reverse and the impacts
of higher VAT begin to transmit, inflation is expected to rise. The
SARB expects headline inflation to remain contained this year,
averaging 3.6%, before converging to the target midpoint over
the outer years of the forecast period. The inflation projection
is, however, subject to unusually high forecast uncertainty due
to the difficult-to-quantify impacts of the VAT increases and
exceptionally high global economic uncertainty.
Box 6 What is the pass-through risk?
1 See F Caselli and A Roitman, ‘Non-linear exchange rate pass-
through in emerging markets’, International Monetary Fund Working
Paper No. WP/16/1, Washington DC: IMF, January 2016.
2 See E Choudri and D Hakura, ‘Exchange rate pass-through to
domestic prices: Does the inflationary environment matter?’, Journal
of International Money and Finance 25(4), 2006, pp 614–639.
3 See A Kabundi and A Mbelu, ‘Has the exchange rate pass-through
changed in South Africa?’, South African Reserve Bank Working
Paper No. WP/2016/10, Pretoria: SARB, November 2016.
Heightened global uncertainty and geopolitical tensions can cause
large swings in exchange rates. Depreciating currencies tend
to generate rising prices, but the extent of this depends on how
much of the exchange rate change gets passed into the rand
prices of goods and services – termed the degree of exchange rate
pass-through.
The degree of exchange rate pass-through varies over time and
across different states of the economy. Severe and sustained
currency depreciations are typically associated with greater
exchange rate pass-through, especially in emerging economies.1
Large depreciations squeeze profit margins by directly increasing
the costs of imported goods (conversion effect) and indirectly by
raising firm’s marginal costs. Similarly, pass-through tends to be
stronger during high inflation periods or economic upturns when
firms have greater pricing power and demand is generally robust.2,3
High and rising price increases allow firms to pass through more
cost increases to consumers with little fear of losing market share.
Global uncertainty as well as the elasticity of firms’ costs with
respect to output have also been found to affect the pass-through
Per cent (standardised)
Core goods inflation and the exchange rate*
Sources: Stats SA and SARB

-3
-2
-1

Core goods inflation
Core goods-related
import unit value index
US$/ZAR

* Percentage change over 12 months standardised around zero

Sep 2024

Mar 2025
Per cent

Real effective exchange rate gap*
Source: SARB
-15
-10
-5

* Values < 0 imply undervaluations

APRIL 2025
rate.4 By contrast, stable inflation expectations (indicating more
credible monetary policy) are, other things being equal, associated
with lower exchange rate pass-through.5
South Africa’s exchange rate pass-through rate was at historical
lows from 2017 to 2021. This coincided with a period of stable
inflation around the target midpoint, a virtually closed output gap,
and moderating and relatively stable inflation expectations. The
macroeconomy, however, shifted markedly in 2022–23, with both
inflation and inflation expectations rising strongly. As a result, passthrough also rose.
Although domestic inflation has eased markedly, with recent outcomes
in the lower half of the 3-6% target band, and underlying inflation and
inflation expectations around the target midpoint of 4.5%, inflation
expectations have yet to fully re-anchor.6 In addition, the pass-through
coefficient is still elevated as not enough time has passed since the return
to the low-inflation regime. Similarly, global economic uncertainty is at
highs last seen during the COVID-19 pandemic. Therefore, on balance,
the risk associated with exchange rate pass-through remains high.
4 See Y Carrière-Swallow, M Firat, D Furceri and D Jiménez,
‘State-dependent exchange rate pass-through’, International
Monetary Fund Working Paper No. WP/23/086, Washington DC:
IMF, April 2023. On convexity, see M Floden, W Simbanegavi
and F Wilander, ‘When is a lower exchange rate pass-through
associated with greater exchange rate exposure?’, Journal of
International Money and Finance 27(1), 2008, pp 124–139.
5 See A Kabundi and M Mlachila, ‘Monetary policy credibility and
exchange rate pass-through in South Africa’, South African Reserve
Bank Working Paper No. WP/18/04, Pretoria: SARB, August 2018.
6 Anchoring is assessed by evaluating the sensitivity of inflation
expectations to actual inflation outcomes, with expectations more
anchored when insensitive to inflation news. See ‘Box 1: Floating
away?’ in the October 2024 edition of the Monetary Policy Review.

Per cent
Exchange rate pass-through estimates

Source: SARB

Average
Box 7 A pleasant monetary policy surprise
1 For the SARB, the RMSEs were 0.5, 0.6 and 0.2 for the current,
one-year-ahead and two-year-ahead horizons respectively, while
analysts’ RMSEs were 0.6, 0.4 and 0.1 respectively. Average
forecast errors – a measure of forecast bias – are also similar across
forecasters, being 0.39, 0.33, 0.32 and 0.41 for the SARB, Reuters
median, the International Monetary Fund (IMF) and the Organisation
for Economic Co-operation and Development (OECD) respectively.
Forecast error analysis allows the South African Reserve Bank
(SARB) to evaluate the accuracy of its model predictions and
identify the necessary improvements to its forecasting framework
to enhance efficacy and robustness. This box unpacks the inflation
forecast errors of 2024.
While headline inflation averaged 4.4% in 2024, the SARB’s
forecasts had anticipated higher rates for much of the year. Analysts’
forecasts showed similar discrepancies to those of the SARB, with
comparable root mean squared errors (RMSEs).1
Forecast errors worsened through much of the first half of 2024
and improved towards the end of the year. Typically, forecasts
improve progressively as more information becomes available and is
incorporated into the model. A breakdown for 2024 shows that the
errors mostly stemmed from components linked to the exchange
rate, which depreciated less than expected. The rand was forecast


Reuters

Headline


Services

Core goods

Fuel

Food

Electricity

Percentage points
Contributions to 2024 inflation forecast errors
Source: SARB
MPC meetings

Jan
Mar
May
Jul
Sep
Nov
Jan
Mar
May
Jul
Sep
Nov
Jan
Mar
May
Jul
Sep
Nov

Underestimation
Overestimation

APRIL 2025
to weaken in response to heightened financial market volatility
following unusually uncertain elections around the world. However,
the rand showed a secular appreciation for other reasons, including
domestic policy settings, resulting in lower inflation in exchange
rate-sensitive goods, in particular core goods and fuel, and to a
lesser extent, food. Oil prices also increased less than expected.
Similarly, unit labour costs came out lower than projected, and this,
coupled with output gap estimates that were slightly more negative
than initially expected, led to less pressure on services and food
inflation than the forecasts had anticipated.
In addition to starting points and assumptions, monetary policy
also impacts on forecast errors, in particular as policy is not fully
reflected in near-term shifts in the forecast. If, for instance, interest
rates are higher than implied by the SARB’s Quarterly Projection
Model (QPM), better-than-expected outcomes may occur in the
various drivers of inflation. Therefore, the pleasant surprise in the
lower inflation outcome could, in part, be attributed to effective
monetary policy.
Percentage points
2024 forecast errors of selected QPM drivers
-6
-4
-2

Oil prices
Unit labour costs
Output gap
Exchange rate*
* Nominal effective exchange rate (inverted)
Source: SARB
MPC meetings

Jan
Mar
May
Jul
Sep
Nov
Jan
Mar
May
Jul
Sep
Nov
Jan
Mar
May
Jul
Sep
Nov

Underestimation
Overestimation

APRIL 2025
Conclusion
The world economy is experiencing extraordinarily high
uncertainty. Economic fault lines, stemming from policy
shifts and heightened trade tensions, have emerged,
adding to pre-existing geopolitical tensions. These shocks
present new risks to both growth and inflation, and have
rendered the global economic outlook more difficult to
predict. US economic data, particularly consumer and
business sentiment as well as stocks, has softened
unexpectedly and the US dollar has weakened, while
inflation remains relatively stubborn. Meanwhile, stimulus
measures in Germany and China could see growth
strengthen in these economies, narrowing the growth
divergence of the past year among the world’s largest
economies.
Global headline inflation is expected to moderate further
this year and the next, but confidence is now lower. Core
inflation in advanced economies remains above targets,
while inflation has been elevated in some emerging
economies owing to strong demand, fiscal concerns
and currency weakness. The combination of persistent
services inflation and potential tariff-induced price
increases presents material upside risks to global inflation.
Central banks are expected to remain cautious due to
increased inflation risks and the potential rise in neutral
interest rates. Modest further cuts by major central banks
are, however, still projected for this year, but policy rates
will likely remain higher for longer. With global interest
rates high and risks elevated, the possibility for further
rate cuts in emerging economies is limited as interest rate
differentials narrow.
Inflation in South Africa is currently contained, and the
outlook appears moderate and in line with the 4.5% target
midpoint. However, the uncertainty around this outlook has
risen markedly since the beginning of the year due to global
and domestic risks, particularly heightened geopolitical
and trade tensions as well as the proposed VAT increases.
The VAT impacts are difficult to quantify in advance as
they depend on an unknown pass-through rate and are
staggered, which raises the risk of second-round effects.
The MPC lowered the policy rate by 50 basis points over
the six-month period from October 2024 to March 2025,
bringing it closer to its estimated neutral level. The QPM
suggests one more 25 basis point rate cut in the second
quarter of this year. Financial markets and economic
analysts broadly agree with this assessment, although rate
expectations in Forward Rate Agreements have exhibited
some volatility. However, with risks and uncertainty
unusually high, policy calibration will likely remain datadependent, while also underpinned by scenario analysis.
The South African economy recorded disappointing
growth over the past two years, mostly reflecting serious
bottlenecks in the energy and logistical sectors. While
notable progress has been achieved in stabilising these
sectors, they may continue to drag on economic activity
for some time. These hysteresis effects are exacerbated
by competitiveness factors, including elevated long-term
borrowing costs as well as high costs of production skills,
gaps and red tape, the materiality impact of which is
becoming increasingly evident.
To ensure growth is more robust and resilient to shocks,
domestic investment needs to rise significantly to rebalance
the economy and complement household consumption
spending. Investment and output growth can be boosted
further by adopting policy measures that permanently
lower inflation risk and strengthen competitiveness.

APRIL 2025
Glossary
Advanced economies: Advanced economies are countries
with high gross domestic product (GDP) per capita,
diversified exports and close integration into the global
financial system.
Balance of payments: This is a record of transactions
between the home country and the rest of the world over a
specific period of time. It includes the current and financial
accounts. See also ‘Current account’ below.
Brent crude: Brent crude is a light and sweet blend of oil from
five different fields in the North Sea. The price of Brent crude
is one of the benchmark oil prices in international markets.
Budget deficit: A budget deficit indicates the extent to which
government expenditure exceeds government revenue.
Business and consumer confidence: These are economic
indicators that measure the level of optimism about
the economy and its prospects among business managers
and consumers.
Commodities: Commodities can refer to energy, agriculture,
metals and minerals. Major South African-produced
commodities include platinum and gold.
Consumer price index (CPI): The CPI provides an indication
of aggregate price changes in the domestic economy.
The index is calculated using a number of categories
forming a representative set of goods and services bought
by consumers.
Core inflation: Core generally refers to underlying
inflation, excluding the volatile elements (e.g. food
and
energy
prices).
The
SARB’s
forecasts
and
discussions refer to headline CPI excluding food,
non-alcoholic beverages (NAB), fuel and electricity prices.
Crude oil price: This is the United States (US) dollar price
per barrel of unrefined oil. See also ‘Brent crude’ above.
Current account: The current account of the balance of
payments consists of net exports (exports less imports)
in the trade account as well as the services, income and
current transfers.
Emerging markets: Emerging markets are countries with
low to middle income per capita. They are advancing
rapidly and are integrating with global (product and
capital) markets.
Exchange rate depreciation (appreciation): Exchange rate
depreciation (appreciation) refers to a decrease (increase) in
the value of a currency relative to another currency.
Exchange rate pass-through: This is the effect of exchange
rate changes on domestic inflation (i.e. the percentage
change in domestic CPI due to a change in the exchange
rate). Changes in the exchange rate affect import prices,
which in turn affect domestic consumer prices and inflation.
Forecast horizon: This is the future period over which the
SARB generates its forecasts, typically between two and
three years.
Gross domestic product (GDP): GDP is the total market
value of all the goods and services produced in a country. It
includes total consumption expenditure, capital formation,
government consumption expenditure and the value of
exports less the value of imports.
Gross fixed capital formation (investment): The value of
acquisitions of capital goods (e.g. machinery, equipment
and buildings) by firms, adjusted for disposals, constitutes
gross fixed capital formation.
Headline consumer price index (CPI): Headline CPI refers
to CPI for all urban areas, as measured on a monthly basis
by Statistics South Africa (Stats SA). Headline CPI is a
measure of price levels in all urban areas. The 12-month
percentage change in headline CPI is referred to as ‘headline
CPI inflation’ and reflects changes in the cost of living. This
is the official inflation measure for South Africa.
Household consumption: This is the amount of money
spent by households on consumer goods and services.
Inflation (growth) outlook: This outlook refers to the evolution
of future inflation (growth) over the forecast horizon.
Inflation targeting: This is a monetary policy framework
used by central banks to steer actual inflation towards an
inflation target level or range.
Monetary policy normalisation: This refers to the unwinding
of an unusually accommodative monetary policy. It could
also mean adjusting the economy’s policy rate towards its
real neutral policy rate.
Neutral real interest rate (NRIR): The NRIR is the level at
which the real interest rate will settle once the output gap is
closed and inflation is stable.
Nominal effective exchange rate (NEER): The NEER
is an index that expresses the value of a country’s
currency relative to a basket of other (trading-partner)
currencies. An increase (decrease) in the NEER indicates
a strengthening (weakening) of the domestic currency with
respect to the selected basket of currencies. The weighted
average exchange rate of the rand is calculated against
20 currencies. The weights of the five major currencies are
as follows: the euro (30.68%), the Chinese yuan (24.53%),
the US dollar (10.56%), the Japanese yen (4.95%) and the
Indian rupee (4.85%). Index: 2015 = 100. See also ‘Real
effective exchange rate’ below.
Output gap/potential growth: Potential growth is the
rate of GDP growth that could theoretically be achieved if
all the productive assets in the economy were employed
in a stable inflation environment. The output gap is the
difference between actual growth and potential growth,
which accumulates over time. If this is negative, then the
economy is viewed to be underperforming and demand

APRIL 2025
pressures on inflation are low. If the output gap is positive, the
economy is viewed to be overheating and demand pressures
are inflationary.
Policy rate: A policy rate is the interest rate used by a central
bank to implement monetary policy.
Productivity: Productivity indicates the amount of goods and
services produced in relation to the resources utilised in the
form of labour and capital.
Real effective exchange rate (REER): The REER is the NEER
adjusted for inflation differentials between South Africa and its
main trading partners. See also ‘Nominal effective exchange
rate’ above.
Repurchase (repo) rate: This is the policy rate that is set
by the Monetary Policy Committee (MPC). It is the rate that
commercial banks pay to borrow money from the SARB.
Real repo rate: This is the nominal repo rate, as set by the
MPC, adjusted for expected inflation.
Terms of trade: This refers to the ratio of export prices to
import prices.
Unit labour cost (ULC): A ULC is the labour cost to produce
one ‘unit’ of output. This is calculated as the total wages
and salaries in the non-agricultural sector divided by the real
value added at basic prices in the non-agricultural sector of
the economy.

APRIL 2025
Abbreviations
AI
artificial intelligence
ARS
Argentine peso
BER
Bureau for Economic Research
BIS
Bank for International Settlements
BoE
Bank of England
BRL
Brazilian real
CAD
Canadian dollar
CHF
Swiss franc
CNY
Chinese yuan
CPI
consumer price index
DALRRD
Department of Agriculture, Land Reform and Rural Development
DXY
US dollar index
ECB
European Central Bank
EM
emerging market
EUR
euro
Fed
Federal Reserve (United States)
FRA
forward rate agreement
GBP
British pound sterling
GDP
gross domestic product
GFCF
gross fixed capital formation
GVA
gross value added
Haver
Haver analytics
HUF
Hungarian forit
IMF
International Monetary Fund
INR
Indian rupee
Jibar
Johannesburg Interbank Average Rate
JPY
Japanese yen
JSE
JSE Limited
KRW
South Korean won
MPC
Monetary Policy Committee (South African Reserve Bank)
MPR
Monetary Policy Review
MTBPS
Medium Term Budget Policy Statement
MW
megawatt
MXN
Mexican peso
NAB
non-alcoholic beverages
NBER
National Bureau of Economic Research
OBEN
Occasional Bulletin of Economic Notes
OPEC
Organization of the Petroleum Exporting Countries
PCCI
persistent and common component of inflation
PCE
personal consumption expenditure
PLN
Polish zloty
PPI
producer price index
QES
Quarterly Employment Statistics
QLFS
Quarterly Labour Force Survey
QPM
Quarterly Projection Model

APRIL 2025
repo (rate)
repurchase (rate)
RMSE
root mean square error
r-star
long-run real neutral interest rate
S&P
Standard & Poor’s
SA
South Africa
SARB
South African Reserve Bank
SSA
sub-Saharan Africa
Stats SA
Statistics South Africa
TRY
Turkish lira
UK
United Kingdom
ULC
unit labour cost
US
United States
VAT
value-added tax
WEO
World Economic Outlook
ZAR
South African rand