Inflation, rate cuts and modest market gains shape SA’s May outlook

South Africa’s economy showed mixed signals in May 2025. Inflation edged up slightly to 2.8% year-on-year, driven by higher food and beverage prices, while GDP grew just 0.1% in Q1, supported mainly by the agriculture sector. The 2025 Budget focused on infrastructure, job creation, and fiscal consolidation, although the debt-to-GDP ratio rose to 77.2%. The SARB cut the repo rate by 25 basis points to 7.25%, aiming to ease pressure amid softer growth and a stronger rand. Manufacturing and mining output declined, and unemployment rose to 32.9%, with youth unemployment reaching 46.1%.

Highlights in this article reveal:

• SA’s CPI rose modestly to 2.8%, led by higher food and beverage prices. 
• The SARB cut the repo rate by 25 bps and the prime rate lowered to 10.75%. 
• Ramaphosa’s visit to the White House focused on revitalising bilateral economic ties. 
• Unemployment rose to 32.9% and youth unemployment hit 46.1%. 

South Africa’s annual consumer price inflation (CPI) rose to 2.8% year-on-year in April, up from 2.7% in March. Month-on-month, CPI was up by 0.3% for April 2025. Key contributing factors included higher prices of food and non-alcoholic beverages, particularly meat and coffee. The annual rate for food and non-alcoholic beverages (NAB) rose to 4.0% in April. Meat was a large contributor to this increase, with prices up 2.3% on average.  

South Africa’s GDP growth was marginal, expanding by just 0.1% in the first quarter of 2025. 

Agriculture, especially horticulture and animal products, drove most of the momentum due to good rainfall.  

The South African 2025 budget was presented by the Minister of Finance, Enoch Godongwana, on 21 May 2025. Key takeaways from the budget included allocating more funds to infrastructure projects, creating a conducive environment for saving and job creation, fiscal consolidation, and spending reductions.  Despite these aims, the debt-to-GDP ratio rose from 75.9% to 77.2%, as a result of lower nominal GDP growth. The VAT rate remained unchanged at 15%. 

Following the Monetary Policy Committee (MPC) meeting in May, the South African Reserve Bank (SARB) governor Lesetja Kganyago announced a 25 basis point cut. This brought the repo rate to 7.25% with effect from 30 May 2025. Consequently, the prime lending rate will be reduced to 10.75%.  

It is also expected that a stronger rand and lower oil prices would help relieve pressure from the increased fuel levy. 

Q1 2025 economic data highlighted several challenges. Mining output fell by 4.5% for the quarter, with platinum group metals contributing to the biggest drag. Consumer spending improved over the quarter, with retail trade sales rising higher. Six out of the seven major retail groups had positive Q1 results. Manufacturing shrank by 2.3% for the quarter, driven down by petroleum, food and beverages, and transport equipment prices.  

The National Treasury reported a budget deficit of R17.13 billion for May, reflecting increased government spending and lower revenue streams. The budget deficit is expected to remain at around 3.8% of GDP in the medium-term framework. The Absa Purchasing Managers’ Index (PMI) dipped to 43.1 in May, down from 44.7 in April, indicating contraction in the manufacturing sector, and showing slightly lower factory activity.  

During May, President Ramaphosa travelled to the US to meet with President Donald Trump at the White House. Attendees alongside President Ramaphosa included the Minister of International Relations and Cooperation, the Minister in the Presidency, the Minister of Trade and Industry, the Minister of Agriculture, and the Special Envoy. The aim of the trip was to reset and discuss bilateral relations between the two countries, with the main focus on economic and commercial relations.  

Employment statistics for Q1 2025 reflected a rise in the unemployment rate to 32.9%. 

Job losses were recorded across the trade, construction, mining, and community and social services sectors. Youth unemployment increased to 46.1%. This reading has remained above the 40% mark since Q3 2020.  

Equity markets performed well for the month: May saw an uptick of +3.0% in the Capped SWIX, +3.1% in the SWIX, and +2.7% in the ALBI, with the latter up +4.2% on a year-to-date basis. Financials, Industrials, and Resources all increased for the month, up +2.5%, +3.9%, and +2.6%, respectively. Mid-Caps and Large-Caps were also up by +5.5% and +2.9% respectively, while Small-Caps gained +3.3%.   

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