MD: Turnaround Talk
Over the past six months, South Africa’s economy has walked a tightrope between fragile recovery and persistent structural headwinds. While specific indicators suggest resilience, others indicate a deepening of vulnerabilities, particularly in sectors under financial strain. What is in store for South Africa’s GDP growth?
As we enter the second half of 2025, the country faces a critical inflexion point: either accelerate reform and unlock growth or risk further erosion of business confidence and economic momentum.
A tepid recovery: GDP and sectoral performance
South Africa’s GDP expanded by a marginal 0.1% in Q1 2025, following a downwardly revised 0.4% increase in Q4 2024. This performance narrowly avoided a technical recession but underscored the economy’s sluggish trajectory. On a year-on-year basis, GDP growth held at 0.8%, reflecting the strongest pace in a year, albeit from a low base.
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The agriculture sector was a rare bright spot, surging 15.2% in Q1, while transport (+2.4%), trade (+0.5%), and finance (+0.2%) also posted modest gains. However, manufacturing (-2.0%) and mining (-4.1%) dragged overall output, mainly due to infrastructure inefficiencies and weak global demand.
On the demand side, household consumption rose by 0.4%, supported by easing inflation and modest wage growth. Yet fixed investment contracted by 1.7%, and government spending fell 0.1%, reflecting fiscal constraints and policy uncertainty.
Business confidence and private sector sentiment
The S&P Global South Africa PMI dropped to 50.1 in June, barely above the neutral threshold and down from 50.8 in May. This decline signals stagnation in private sector activity, with output and new business volumes contracting for the first time in three months. Business confidence also fell to its lowest level in nearly four years, driven by concerns over domestic policy direction and global trade tension.
Despite these headwinds, employment showed resilience. Businesses increased headcounts for the second time in three months, particularly in the services sector. Inventory levels remained positive, and supply chain conditions improved slightly, aided by reduced port disruptions.
Financial distress: liquidations on the rise
One of the clearest indicators of economic strain is the uptick in business closures. According to a report by Statistics South Africa, 623 businesses were liquidated between January and May 2025, with 141 closures in May alone; a 12.8% year-on-year increase for that month.
While voluntary liquidations accounted for the majority of cases (538), the rise in compulsory liquidations (up 14% year-to-date) is particularly concerning. These court-ordered shutdowns often signal deeper solvency issues and systemic distress.
The sectors most affected include:
- Financing, insurance, real estate, and business services: 37 closures in May alone;
- Trade, catering, and accommodation: 23 closures; and
- Construction and manufacturing: Continued vulnerability, though not yet in triple-digit territory.
These figures reflect not only economic pressure but also the cumulative impact of delayed reforms, infrastructure bottlenecks, and rising input costs.
It is essential to determine the root cause of why these figures are so high. Financial distress does not occur overnight; it is the gradual erosion of solvency that can often be addressed if business executives are aware of the root causes of financial distress or are honest about their business’s financial state.
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Business rescue and turnaround professionals bring a structured, objective lens to situations where financial distress is mounting, often before crisis becomes collapse. Their value lies not only in strategic intervention but in early detection. By conducting independent assessments, stress-testing financial assumptions, and identifying operational inefficiencies, they help uncover the root causes of underperformance that may be obscured by internal biases or poor visibility. Through restructuring plans, creditor negotiations, and the design of leaner, more sustainable models, these professionals offer a pathway to recovery that preserves value, safeguards jobs, and restores stakeholder confidence. Their role is both corrective and preventative, ensuring solvency erosion is arrested before it becomes irreversible.
Inflation, interest rates, and consumer dynamics
Headline inflation has remained relatively subdued, averaging 2.8% in May, which is within the target range of the South African Reserve Bank (SARB). This has opened the door for potential interest rate cuts, with the SARB expected to reduce the repo rate by 25 basis points to 7% in its July meeting.
Lower inflation and interest rates have improved household purchasing power, with wage growth expectations rising to 4.9% in 2025. However, consumer confidence remains fragile, and debt levels, particularly unsecured credit, continue to weigh on spending capacity.
Outlook: the next six months
The economic outlook for the remainder of 2025 is cautiously pessimistic. Forecasts from the Bureau for Economic Research (BER) and Investec have revised GDP growth down to 0.9%, with some estimates dipping closer to 0.8%. The African Development Bank has echoed this sentiment, citing trade tensions, infrastructure gaps, and fiscal vulnerabilities as key drags on growth.
Key risks include:
- Geopolitical uncertainty, particularly the reinstatement of US tariffs on South African exports, which could hit agriculture and manufacturing hard;
- Structural inefficiencies at Transnet and Eskom, which continue to limit freight capacity and energy reliability; and
- Fiscal constraints, with debt-service costs consuming over 22% of the state’s revenue, limit its ability to stimulate growth.
However, there are also opportunities. The easing of load shedding, increased private sector participation in logistics and energy, and the implementation of Operation Vulindlela reforms could support a gradual recovery, if executed decisively.
A call for strategic urgency
South Africa’s economy is not in freefall, but it is drifting. The past six months have shown that while resilience exists, it is being steadily eroded by policy inertia, global shocks, and domestic inefficiencies. The rise in liquidations, the stagnation in private sector activity, and the downward revisions in growth forecasts all point to a need for urgent, coordinated action.
The next six months will be pivotal. With the right mix of structural reform, fiscal discipline, and targeted investment, particularly in infrastructure and SME support, South Africa can still chart a path toward inclusive, sustainable growth. But without bold leadership and execution, the economy risks slipping further into stagnation. The clock is ticking, and the market is watching.
