South Africa is in the early stages of a virtuous economic cycle, with improving domestic conditions being coupled with supportive global macroeconomic trends.
This is a very rare phenomenon for the country, which last experienced such a cycle in the early and mid-2000s, when its economy grew at an average rate of above 4%.
Since then, deteriorating local finances, widespread corruption and crime, and the collapse of various state-owned enterprises have hobbled South Africa’s economic growth.
The country has averaged an annual growth rate of 1.1% since 2010 and a mere 0.8% for the past decade, substantially below its population growth rate.
There are signs that this is changing, with global commodity prices rising at a time when there is some positivity surrounding local political developments, particularly reform at Eskom and Transnet.
This is expected to translate into a stronger rand, lower inflation, reduced interest rates and improved confidence – boosting local economic growth.
However, the country will require some good luck for the cycle to play out, with the opportunity fragile and fleeting.
Sanlam Private Wealth chief investment officer David Lerche explained that if this cycle plays out, which is not guaranteed, it could significantly change the investment landscape in South Africa.
Fundamentally, investing in a faster-growing economy is vastly different from the past decade, when South Africa was effectively stagnant, offering little opportunity for investors.
Lerche explained that a virtuous macroeconomic cycle refers to a self-reinforcing positive feedback loop where progress in one area fuels improvements in others.
This can lead to sustained, broad-based economic growth of the kind that the country has lacked for the past 15 years.
In South Africa, such a cycle is typically the result of commodity tailwinds, easing inflation, lower interest rates, improved investor confidence, and a strengthening currency.
These factors can feed into each other and create a flywheel that drives economic growth higher, as shown in the graph below.
South Africa’s virtuous cycle
The most obvious driver of a virtuous economic cycle in South Africa is the rebound in platinum and gold prices, which have soared in 2025.
These commodities form the backbone of South Africa’s export earnings, and thus, higher prices translate into stronger terms of trade.
Lerche explained that this supports the rand, easing imported inflation and boosting domestic purchasing power. In particular, a stronger rand translates into lower fuel prices.
These prices then feed into the economy’s broader cost structure, providing direct relief to households and indirectly easing cost pressures on businesses.
With consumers feeling less pressure at the pump, disposable income improves – supporting broader spending.
This is boosted further by reduced interest rates, with lower inflation giving the Reserve Bank more space to cut the repo rate.
In turn, this stimulates local consumption, investment, and economic activity. Crucially, lower rates also improve the debt-servicing capacity of both households and corporates, freeing up cash for more productive use.
Rising platinum and gold prices not only boost export earnings but also lift government revenue through higher mining taxes and royalties.
This influx, together with a declining interest bill, helps support government finances at a critical juncture, easing pressure on borrowing and potentially creating space for higher infrastructure spend.
Healthier government coffers also improve South Africa’s sovereign credit profile. If handled prudently, this can help reverse the long-standing trend of rising debt-to-GDP, restore market trust, and drive the cost of borrowing down further.
All of this improves confidence in the local economy, encouraging investment, which further boosts economic growth.
As confidence builds, it feeds into investment, hiring, and long-term growth planning – pushing the economy into a more sustainable trajectory.
However, Lerche said this is far from guaranteed, as things can always change, particularly with a small economy like South Africa’s that is buffeted by global factors.
More often than not, South Africa has been stuck in a vicious cycle rather than a virtuous one, characterised by low growth, fiscal deterioration, policy drift, and infrastructure failures.
Therefore, Lerche warned that the risks remain real, with any breakdown in coalition politics, renewed load-shedding, or a global economic slowdown derailing the virtuous cycle.
External shocks – such as rising oil prices, falling precious metals prices, a resurgence in global bond yields or large-scale geopolitical events – could all reverse progress.
