By: Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano
The 2026 National Budget is top of mind as we wrap up the week. In our previous publication, we covered the fiscal metrices extensively and are aligned with the consensus that revenues should be supported by the commodity price windfall; expenditure growth should be contained; and another primary surplus should be recorded, which should soften the debt trajectory1. That said, we think it is also important to consider fiscal priorities. Some are pre-existing, most receive keen attention in the current climate, and some appear back of mind but could come to the fore in future.
Reform mode
South Africa is undertaking economy-wide reforms that are pivotal to improving the operating environment, attracting fixed investment, growing the economy, and creating jobs. We expect that Treasury, given its joint effort with the presidency through Operation Vulindlela, will spend the most airtime on ongoing reforms - speaking to gains made in the electricity and logistics sectors, while highlighting new efforts to address municipal financial and service delivery failures (which are interconnected). While there should be updates on a broad range of other reforms, we think water and logistics are particularly critical.
Pre-existing priorities, tough to resolve
There are several social priorities that will likely always feature in the budget and are bundled in the social wage. The severe rate of unemployment and inequality in this country make it difficult to pivot from a somewhat extensive grant system. As is the case with the Social Relief of Distress grant, what was meant to be a shock absorbing intervention easily became embedded because socioeconomic issues are sticky and take great effort to reverse. The need to protect millions of vulnerable people can never be temporary unless economic prospects improve significantly. With the understanding that socioeconomic gains from ongoing reforms will take time to materialise, we like that government is looking to reduce bureaucratic hurdles for small businesses because this will assist all those operating on the fringes of the formal labour market as well. This effort will be reinforced by a better operating environment, and government relinquishing some of the space that it now occupies to such businesses.
The SONA crystal ball
This year's State of the Nation Address (SONA) highlighted some new, but not so new, priorities. These included the fight against crime, border security, and specialised courts - all within the crime and justice system, which may have seemed somewhat neglected beyond simple headcount funding. We hope this suggests a broader rethink around crime prevention and the legal system's tardiness. In our ideal scenario, this would also include the state of the South African National Defence Force which also requires some attention. The government seems to also be keen on a greener, data- and productivity-driven economy. To achieve this efficiently, collaboration across industrial and education strategies, alongside financing, is required. We think a lot more thought needs to be put into this, especially while trade relations are being recalibrated.
Conclusion
The government faces pre-existing obligations, immediate pressures, and likely future priorities all within a constrained fiscal envelope and limited scope to raise additional revenue. In this context, it makes sense that the strategy is to reduce the direct role of government in the economy and allow it to instead drive industrial and social strategy. That said, careful calibration remains essential. The transition requires a disciplined balancing act between fiscal consolidation, growth, and social stability.
Week in review
The Quarterly Labour Force Survey (QLFS), a household-based employment survey (not seasonally adjusted), reflected an increase in total employment of 44 085 q/q in 4Q25, following an increase of 248 321 in the previous quarter. Compared to the same quarter last year, employment increased by 21 066 to 17 098 908. The level of unemployment declined by 171 624 q/q and by 155 225 y/y, bringing the total number of unemployed individuals to 7 835 722. The modest employment gains and a sharp decline in unemployment resulted in the official unemployment rate falling by 0.5-percentage points to 31.4%. Seven of the ten broad economic sectors recorded net job gains in 4Q25. Community and social services led with 46 180 net gains, driven by education, health and public administration. Construction followed with 34 937 net gains, largely related to building installations and completion activities. Financial and business services added 32 021 jobs, particularly in insurance, pension funding, computer services and equipment rental. Agriculture recorded 30 018 net gains, largely from crop production and coastal fishing activities. The largest job losses occurred in wholesale and retail trade (-98 083), manufacturing (-61 212), and mining (-5 315).
Headline inflation was recorded at 3.5% y/y in January from 3.6% in December. Monthly pressure was 0.2%, mainly driven by core and food price pressures which were mitigated by lower fuel prices. Core inflation was 0.3% m/m and 3.4% y/y, slightly up from 3.3% previously. Average fuel prices fell by 3.4% m/m and were 3.7% lower than at the same time last year. Food and non-alcoholic beverages inflation remained unchanged at 4.4% y/y but posted monthly pressure of 0.4%. Including this data in our model suggests that headline inflation will ease further in February, to around 3.2%, supported by fuel price cuts.
Retail sales growth decelerated in December, coming in at 2.6% y/y, down from 3.6% in November. On a month-on-month basis, volume sales declined by 0.4%, partly reversing the 0.6% gains recorded previously. Nevertheless, quarterly volumes remained up by 0.8%, suggesting another positive contribution to 4Q25 GDP growth. For 2025, retail sales grew by 3.7% y/y.
Week ahead
On Tuesday, the Leading Business Cycle Indicator for December will be published. In November, it rose by 1.4% m/m to 118.4 points. The rise was supported by an increase in eight out of ten available components, with the largest contributions coming from an increase in the trend growth rates of real M1 money supply and job advertisement space. The biggest mitigators were a narrowing of the interest rate spread and a decrease in new passenger vehicles sales trend growth
On Thursday, producer inflation data for January will be released. In December producer inflation held at 2.9% y/y, unchanged from November. On a monthly basis, producer prices rose by 0.2% following a flat outcome previously. Food products, beverages, and tobacco were the biggest contributors to headline inflation, while notable increases also emerged in categories such as furniture and other manufacturing. Overall, producer inflation averaged 1.5% in 2025, down from 3.1% in 2024, reflecting a moderation driven largely by lower petroleum-related product prices, including diesel and petrol.
On Friday, data on Private Sector Credit Extension (PSCE) for January will be released. PSCE increased to 8.7% y/y in December, from 7.8% in November. Corporate credit led the surge, rising by 12.9% following an 11.4% increase in the previous month, mainly driven by general loans and advances. Household credit growth rose to 3.7% y/y, up from 3.5% in November, with further improvements in car finance and minor recovery in home loans as well as in general loans and advances.
Also on Friday, the trade balance for January will be published. The trade balance recorded a narrower surplus in December of R23.2 billion versus a R37.9 billion in November. The December outcome reflected a softer 5.8% fall in imports, while exports fell sharply, dropping 12.5% m/m to a ten-month low of R164.3 billion.
