Ratings agency Fitch says that South Africa’s economy remains “constrained by low real GDP growth, a high level of poverty and inequality, a high and rising government debt/GDP ratio, and a rigid fiscal structure that hampers budget deficit reduction.”

In a note published on Friday, the agency said that it “forecast low real GDP growth of 1.2% in 2025-2027, against 0.5% in 2024” and that “growth is hampered by a slowly recovering logistics sector, weak investment, uncertainty over external trade relations and deeply entrenched structural factors, particularly high levels of inequality, poverty and unemployment.”

South Africa’s rate of fixed investment is around half of that of its emerging-market peers, while its unemployment rate is roughly six times higher than the emerging-market average. At the 1.2% rate forecast by Fitch, South Africa’s economy would be growing at less than a third of the rate of its emerging-market peers.

Fitch expects that South Africa’s government will manage to keep the budget deficit at 4.8% this year (unchanged from last year) “via a moderation in the wage bill, helped by the implementation of an early-retirement scheme [for civil servants], below-inflation-adjusted transfers to state-owned enterprises as well as enhanced tax compliance.”

The agency forecast that consolidated government debt “will continue to rise to 78.5% of GDP [in 2025], 79% [in 2026] and 79.6% [in 2027]… debt will accumulate more slowly than in previous years in our forecasts, helped by fiscal consolidation efforts, slightly higher nominal GDP growth prospects and government's plan to draw down cash balances.”

Fitch stressed that it was in South Africa’s favour that the bulk of government debt was denominated in rand.

The agency was sceptical of the South African government’s reform efforts, writing that “[the] government of national unity (GNU) continues, under Operation Vulindlela 2, to implement a reform agenda… nevertheless, we believe these reforms will not materially affect the deeply entrenched structural factors, including poor human capital, low labour participation partly hindered by geospatial fragmentation, and low investment, which drag on growth.”

Fitch sees that “headline inflation will rise to 4.2% by end-2025 from 2.9% at end-2024, due to food inflation pressures, and then decline to 3.8% in 2026 and 3.2% in 2027, helped by low core inflation expectations, lower electricity tariff hikes, and our forecast of moderate rand appreciation.”

On politics, the agency wrote that “the GNU is holding together after a fractious budget approval process earlier this year. There appears to be broad agreement on key economic priorities and Fitch expects the GNU to stay in place in the near term. However, relations are fluid between and within the main parties and municipal elections, which have to be held by early 2027, will pose a test, given the likely close contests between the main constituent parties.”

Fitch’s projections highlight cautious optimism through modest growth and contained fiscal risks. Yet, its analysis also reveals that deep structural issues and political uncertainty weigh heavily on South Africa’s long-term prospects.