GNU stress has impacted heavily on sentiment

The formation of the GNU significantly improved sentiment in South Africa, as evidenced by the BER’s manufacturer survey, which showed a sharp decline in political climate constraints through Q3 2024, though sentiment deteriorated in Q1 2025 due to budget postponement and visible GNU divisions.
The GNU’s initial promise of fiscal and economic reforms, supported by initiatives like Operation Vulindlela, boosted investor confidence and bond market performance, but failure to implement reforms risks squandering these gains and sustaining high borrowing costs.
The ZAR experienced a strong rally in 2024 post-GNU formation, but recent strains in the coalition have made it one of the worst-performing EM currencies in 2025, with market reactions largely tied to GNU stability rather than external factors like US tariff policies.
South Africa’s fiscal challenges, with high budget deficits and debt servicing costs, require deeper structural reforms—such as liberalising energy, streamlining regulations, and enhancing private sector involvement—to drive sustainable economic growth and reverse credit rating declines. This is what the GNU needs to implement.

While the GNU has provided a boost to investor sentiment and market performance, its long-term success hinges on implementing promised reforms to address South Africa’s fiscal and economic challenges. The ZAR’s volatility reflects ongoing market concerns about coalition stability, but recent negotiations suggest the GNU may hold, potentially supporting a ZAR recovery if fiscal progress is made.
Without sustained reform efforts, particularly in reducing government size and boosting private sector growth, South Africa risks losing the opportunity to achieve a sustainable fiscal trajectory and regain investment-grade status.