South Africa’s 2026 Budget outlines a modest but improving economic outlook, reflecting gradual recovery alongside persistent structural challenges in the economy.

National Treasury expects the economy to grow by 1.6% in 2026, following estimated growth of 1.4% in 2025. Over the medium term, growth is projected to average about 1.8% between 2026 and 2028, reaching 2% by 2028 if reforms continue and investment strengthens.

Several factors are expected to support this gradual recovery. Improved macroeconomic stability, progress on structural reforms and stronger investor confidence have helped lower borrowing costs and support economic activity. Treasury notes that improvements in infrastructure and logistics – particularly in electricity supply, rail and ports – could further unlock investment and boost growth.

Household spending remains an important driver of economic activity. Household consumption is estimated to have grown 3.1% in 2025, before moderating to 1.8% in 2026 as the economy normalises after a period of stronger growth. Over the medium term, consumption is expected to average around 2%, supported by rising real incomes, lower inflation and improving credit conditions.

Investment is also expected to recover. After contracting in recent years, fixed investment is projected to grow by about 2.4% in 2026, supported by improved financing conditions, infrastructure projects in energy, water and transport, and investment in renewable energy and digital infrastructure.

Despite these improvements, unemployment remains a significant concern. South Africa’s official unemployment rate averaged 31.9% during the first three quarters of 2025, while the labour force absorption rate remains low at 40.6%, highlighting the persistent gap between labour supply and job creation.

Inflation is expected to remain contained within the South African Reserve Bank’s target range, rising slightly from 3.2% in 2025 to 3.4% in 2026 before easing again over the medium term.

Overall, the economic outlook reflects gradual improvement but continued structural constraints, underscoring the importance of reforms that expand productive capacity and support faster, more inclusive growth.