The National Treasury has lowered its growth outlook for 2026 to 1.2% from its 1.6% forecast outlined in the February Budget.

In 2025, South Africa achieved growth of 1.1%, once again falling short of levels required to reduce unemployment and poverty.

Growth is expected to reach 1.6% in 2027 and rise to 2% by 2029, which remains below the 3% growth target set under the Government-Business Partnership.

Finance Minister Enoch Godongwana acknowledged in his Medium-Term Budget Policy Statement (MTBPS) address on Wednesday that the risks to growth remained elevated.

“A prolonged conflict in the Middle East, alongside El Niño and its likely impact on producer costs and output, could further weaken domestic growth,” he said.

However, he argued that fiscal discipline and a lower inflation target were helping to contain borrowing costs and reduce South Africa’s risk premium. While ongoing structural reforms, coupled with the focus on delivering public infrastructure, had the potential to place the economy on a “faster, more sustainable growth trajectory”.

“If we stay the course, growth could exceed 3% per annum,” he asserted.

The National Treasury also published three alternative scenarios to its baseline forecast, including:

• The domestic upside Scenario A, which models a successful implementation of the expanded Operation Vulindlela Phase II reforms, supported by higher public and private investment. This yields real GDP growth of 2.3% by the end of the medium term, compared with 2% in the baseline. Under the scenario, the level of real GDP is 3.1% higher than the baseline by 2034;
• The domestic upside Scenario B assumes a gradual improvement in the level and quality of public investment spending over the long term, driven by reforms that root out inefficiencies and strengthen collaboration with the private sector. Real GDP growth averages 1.8% over the medium term, compared with 1.6% in the baseline. By 2034, real GDP reaches a level which is 1.6% higher than the baseline; and
• The global downside Scenario C, which assumes a re-escalation of geopolitical tensions in the Middle East in the first half of 2027, in line with the downside risk assessment in the IMF’s latest World Economic Outlook, with elevated uncertainty persisting throughout the year. Real GDP growth averages 1.5% between 2026 and 2029, compared with 1.6% in the baseline.

The National Treasury said in the MTBPS document that the risks to the outlook were tilted to the downside.

“A prolonged stalemate or escalation of conflict in the Middle East could keep energy prices high and inflation elevated, while a reassessment of AI investment could tighten global financial conditions.

“Domestically, infrastructure bottlenecks, weak confidence and limited fiscal space leave little room to cushion further shocks.

“Conversely, a quicker resolution to the war, faster reforms or improved state capability could lift growth above current forecasts,” the document states.