South Africa’s economy grew by 1.1 percent in 2025, with the finance, real estate and business services sector emerging as the biggest contributor to the country’s economic expansion, according to economist Lara Hodes.
Speaking during an interview on ARISE News on Wednesday, Hodes disclosed this while analysing South Africa’s latest Gross Domestic Product (GDP) figures.
According to the latest data, South Africa added about 289 billion rand to its economy in 2025, bringing the country’s nominal GDP to approximately 7.6 trillion rand and maintaining its position as Africa’s largest economy.
Hodes explained that although agriculture recorded strong growth during the year, the overall expansion of the economy was not broad-based as some sectors contracted during the same period.
“It wasn’t a broad-based increase,” she said, noting that while some industries recorded growth, others experienced declines.
She identified the finance, real estate and business services sector as the leading contributor to economic growth, accounting for half of the total expansion recorded in 2025.
“The biggest contributor to the 1.1 percent growth was the finance, real estate and business services sector, which contributed 0.5 of a percentage point,” Hodes said.
Agriculture also played a major role in supporting economic growth, particularly after a strong recovery in crop production during the year.
According to her, the sector recorded an impressive 17 percent growth in 2025, largely driven by increased production of field crops and horticultural products.
The economist noted that the strong agricultural performance was supported by favourable weather conditions and improved rainfall, which boosted crop yields.
“We had an impressive maize harvest and it was supported by favourable weather conditions, which included ample rainfall,” she said.
However, Hodes explained that part of the strong growth in agriculture was also influenced by a statistical base effect.
She noted that the sector had previously contracted by about 8.4 percent in 2024, meaning the rebound in 2025 reflected a recovery from that earlier decline.
The trade sector also contributed to the overall expansion of the economy, adding about 0.3 percentage points to the country’s 1.1 percent growth rate.
Despite the improvement, Hodes described the overall economic performance as modest and insufficient to significantly improve employment levels.
“It’s definitely not a lights-out growth figure. It’s still very lacklustre and definitely not enough to see a notable increase in employment,” she said.
She explained that although the economy has started addressing some structural challenges particularly in the electricity sector several issues continue to limit stronger economic growth.
One of the key improvements, according to her, has been progress in addressing load-shedding, which has long disrupted economic activity in the country.
However, she stressed that South Africa still faces serious infrastructure challenges, especially in water systems and logistics networks.
Hodes also noted that global geopolitical developments could affect the country’s economic outlook, particularly ongoing tensions in the Middle East which have created uncertainty in global markets.
She said the conflict has influenced global oil prices, although recent developments have helped moderate prices to below 90 dollars per barrel.
On the expenditure side of the economy, Hodes highlighted improvements in gross fixed capital formation, which increased by 1.3 percent.
According to her, the increase reflects growing investment in infrastructure development as well as stronger private sector spending.
She said part of the investment growth came from increased spending on computer software and information and communication technology equipment as companies continue to pursue digital transformation.
“The other asset category was largely responsible for this, which includes spend on computer software and ICT equipment,” she explained.
Household consumption also recorded moderate growth, rising by about 1.2 percent during the period.
Hodes said consumer spending remains a major driver of the South African economy, accounting for more than two-thirds of economic activity.
She noted that several factors supported household spending, including lower inflation, monetary easing, and a slight improvement in employment conditions.
Although unemployment remains high at over 31 percent, she said the modest decline in the jobless rate and improved consumer confidence have helped support spending.
Looking ahead, Hodes expressed cautious optimism about South Africa’s economic outlook for 2026.
She projected that the country’s economy could grow by about 1.5 percent, reflecting gradual improvements in key sectors and continued policy reforms.
According to her, progress has already been made in several areas, including improvements in investor confidence and positive developments in the country’s financial standing.
However, she warned that global uncertainty including geopolitical conflicts and rising protectionist trade policies could still affect the pace of economic growth.
“We are expecting an acceleration to 1.5 percent for this year,” Hodes said, while emphasising that the global environment remains unpredictable.
She added that while the economy is showing signs of recovery, sustained reforms and infrastructure improvements will be necessary for South Africa to achieve stronger and more inclusive growth in the coming years.
Triumph Ojo
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