Economic Update August 2025
- Dr Roelof Botha
- Sep 5
- 3 min read
The downside
August witnessed another round of huge embarrassments emanating from the public sector at large. The ill-timed visit to Iran by the Chief of the South African National Defence Force and the comments made by him have been widely condemned as reckless grandstanding at a time when sensitive negotiations are underway to maintain sound trade relations with the US and, very importantly, prevent job losses in key export industries. A paradox between progress with service delivery and poor leadership is increasingly characterising the Government of National Unity. Iran's sponsorship of international terrorism is no secret, whilst it is constantly being found guilty of gross human rights violations.
On the energy front, the debacle with the determination of Eskom's electricity tariffs by the National Energy Regulator of South Africa (Nersa) is going to cost consumers an additional R54 billion. It is incomprehensible that a public sector organisation such as Nersa can make such a mistake as a result of incorrect data inputs into its model for fee determination. More importantly, in the long run, is the question over the relevance of Nersa's existence, which seems like one of dozens of examples of layers upon layers of bureaucracy that have been engineered by the ANC since 1994. A thorough overhaul of the size and scope of public sector agencies is long overdue.
The upside
Improvement in household finances
The results of the Altron FinTech Household Resilience Index (AFHRI) for the first quarter of 2025 were released on 3 September, confirming a modest improvement in the financial disposition of South African households. The year-on-year improvement of 2.5% in real terms outperformed the real increase in the country's GDP by a considerable margin, and this improvement is mirrored by the latest reading of the BetterBond Index of Home Loan Applications, as illustrated by the graph.
The key driver behind the return to an upward trajectory for these two indicators is the Reserve Bank's return to an accommodating monetary policy stance, albeit only modestly. The current prime rate is 125 basis points lower than it was a year earlier, but it remains 50 basis points higher than it was immediately before the Covid-19 pandemic. Another indicator that has boosted the financial disposition of households is the increase in real salaries in the private sector.
A welcome decline in the bond yield
According to fund managers polled by Bloomberg in mid-August, foreign investors are flooding into South Africa's government bond market to capitalise on what has been described as one of the best emerging-market trades of recent years. The bonds have attracted net inflows of R139 billion between January 2024 and the end of the second quarter of 2025, exceeding the total for the previous four years combined. The coalition government established after the 2024 elections has contributed to a positive sentiment, winning over investors with plans to reform the economy and improve the public finances.
Earlier this year, foreigners were net sellers of South African bonds, causing the bond yield gap with US bonds to increase from 5.6% to 6.2%. Following two subsequent interest rate cuts of 25 basis points each and the eventual Parliamentary approval of the 2025/26 national budget, this trend was reversed. Since January, the 10-year US bond yield has fallen by 60 basis points, whilst the local bond yield has dropped by 160 basis points, resulting in a narrowing of the yield gap to only 5.3% at the end of August. Lower domestic bond yields exert a beneficial effect on fiscal stability.
Full recovery for motor trade sales
It took 17 quarters for the number of new local vehicle sales to recover fully from the Covid-19 pandemic. Still, the second quarter of 2025 finally witnessed a higher level than pre-COVID, with 135,000 new vehicles sold. Based on the 4-quarter average, this translates into approximately 1,500 new vehicles on South Africa's roads every day of the calendar year. Motor trade activity at large represents a sector valued at more than R1 trillion per annum and, according to Drive.co.za, employs an estimated 580,000 people.
Harbours on the mend
South Africa's ports appear to be on a path of recovery from a myriad of problems encountered over the past decade. Between January 2024 and July 2025, the number of containers handled at the five ports increased by 64%, with the latest throughput of containers approaching levels last seen almost a decade ago. Transnet Port Terminals is investing R4 billion in new equipment, including straddle carriers, components for four ship-to-shore cranes, rubber-tyred gantries and hauliers, which will assist the drive for improved efficiency at the country's ports.
On Balance by Dr Roelof Botha deliberately emphasises positive news, which often emphasises the resilience of the South African economy and the immense scope for new business opportunities.
Comments