By: Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano
Three weeks ago, Statistics South Africa released the Quarterly Labour Force Survey (QLFS) for 4Q25, showing that while South Africa's unemployment rate declined, the improvement masks continued structural weakness in the labour market. Beneath the headline decline lies rising hidden slack, weakening labour force participation and only marginal net job creation.
According to the QLFS, total employment increased by 44 085 q/q to 17.1 million. On a year-on-year basis, employment rose by only 21 066 jobs, a modest growth for an economy with a rapidly expanding working-age population.
Formal sector employment increased by 319 739 jobs during the quarter, but this was largely offset by a decline of 293 236 jobs in the informal sector, leaving overall net job creation limited.
The number of unemployed people declined by 171 624 to 7.8 million. However, the fall in unemployment was driven largely by a contraction in the labour force, with about 127 539 people exiting the labour market during the quarter. As a result, the unemployment rate declined to 31.4%, reflecting falling participation rather than stronger labour demand.
Encouragingly, seven of the ten broad sectors recorded job gains, led by community and social services, construction, financial services, and agriculture. However, notable losses in wholesale and retail trade and manufacturing offset much of this improvement.
More concerning is the continued rise in labour market discouragement (Figure 1). The number of discouraged work-seekers increased by 233 460 during the quarter (and by 248 507 compared to the same quarter a year ago), contributing to a rise of 247 594 people classified as outside the labour force.
At 40.6%, the labour absorption rate remains well below the 46.2% peak recorded in 2008 (Figure 2), highlighting persistent structural weakness in South Africa's labour market.
Overall, the data highlights that the economy is not generating enough jobs to absorb its growing population. Sustained improvements in labour market outcomes will require faster economic growth and structural reforms that support business expansion, particularly among small and medium-sized enterprises. This challenge could become even more pressing as technological change, including the increasing adoption of artificial intelligence, begins to reshape labour demand across sectors.
Week in review
The manufacturing PMI fell by 1.3 points to 47.4 in February. Most subcomponents remained broadly unchanged; however, business activity slipped back into contractionary territory falling from 51.4 in January to 45.7. The employment index ticked down to 42.5 in February, from 43.9 in January, dragging the overall headline index. The new sales orders index moved sideways, and while the export sales index improved, it remains in contractionary territory. The index tracking expected business conditions improved, rising to 68.8 points from 66.4 in the prior month, highlighting that while conditions in February remained broadly negative, there is optimism that the outlook will improve. The manufacturing sector's performance continues to be constrained by shipment delays at South African ports, intermittent electricity disruptions, and weak demand.
New vehicle sales volumes rose by 11.4% y/y in February to 53 455 units, following the 50 521 units sold in January. The increase was largely driven by commercial vehicle sales, which grew by 11.5% y/y compared with 8.4% previously, reaching 15 879 units. New passenger car sales ticked up to 11.3% y/y, compared with 8.4% previously and reaching 37 576 units, although this was slightly lower than the 37 644 units sold in the prior month. Within the commercial vehicles segment, light vehicles recorded growth of 11.9%, sales of heavy vehicles continue the surge, rising by 27.5%, while extra heavy vehicle sales recovered strongly, increasing by 8.8% and rebounding from a 16.3% contraction previously. By contrast, bus sales contracted by 7.3%, coming from a sharp increase of 24.4% previously. The sustained annual growth in vehicle sales reflects a combination of an ongoing replacement cycle, low and stable inflation, recent interest-rate cuts, and resilient demand for entry-level and more affordable vehicle brands.
The RMB/BER Business Confidence Index (BCI) rose to 47 index points in 1Q26, up from 44 in the previous quarter. While confidence improved modestly, the index remains below the neutral 50-point mark. Sentiment strengthened among building contractors and new vehicle dealers, supported by interest rate cuts and resilient demand in more budget-friendly segments. By contrast, retail and manufacturing confidence declined. Composite indicators suggest that the economy is moving out of contractionary territory, although the recovery remains fragile.
Electricity production declined by 6.2% y/y in January, following a 7.8% decline in December. However, on a seasonally-adjusted basis, generation increased by 1.5% m/m, after a 1.4% m/m decline in December. Looking at the broader trend, electricity generation declined by 2.5% in the three months ending January, compared with the prior three-month period.
South Africa's gross foreign exchange reserves climbed to a record high of $81.1 billion in February, up from $80.2 in January. The increase was largely driven by an increase in gold reserves and foreign exchange reserves. The forward position increased to $0.57 billion, from $0.56 previously, reflecting the central bank's unsettled or swap transactions. In contrast Special Drawing Rights (SDR) holdings decreased to $6.6 billion from $6.7 billion previously.
Week ahead
On Monday, the FNB/BER Building Confidence Index for 1Q26 will be available. The index rose to 43 index points in 4Q25, up from 35 previously. The index was at its highest in ten years but still reflected broader dissatisfaction with prevailing business conditions. While work among main contractors, architects, and hardware retail sales improved, activity declined among sub-contractors and quantity surveyors.
On Tuesday, Real GDP data for 4Q25 will be released. In the previous quarter, real GDP grew by 2.1% y/y, up from 0.9% y/y in 2Q25. On a seasonally-adjusted basis, the economy expanded 0.5% q/q. Growth was broad based, with mining; trade, catering and accommodation; finance, real estate and business services; as well as general government services each contributing 0.1-percentage point (ppt). The only sector to record a contraction was electricity, gas and water. Household consumption rose 0.7% q/q, while gross fixed-capital formation rose 2.6% q/q. We expect GDP growth momentum to have been sustained in 4Q25, albeit at a slow pace of around 0.3% q/q. The notoriously volatile agricultural sector poses two-sided risks.
On Thursday, we will get current account data for 4Q25. In the previous quarter, South Africa's current account deficit narrowed to R57.0 billion from R72.2 billion in 2Q25. As a share of GDP, the deficit improved to -0.7% from -1.0% previously. This outcome reflected a smaller surplus on trade in goods and services. Export volumes fell, while import growth was largely driven by higher prices. Consistent with this, South Africa's terms of trade deteriorated as import prices rose faster than export prices.
Also on Thursday, mining production data for January will be released. Mining production (not seasonally adjusted) expanded by 2.5% y/y in December, rebounding from a 2.4% decline in November. Seasonally-adjusted mining output declined by 1.2% m/m, following a 5.4% contraction in November. The largest positive contributors were iron ore and manganese ore, while PGMs and coal were the largest detractors. Overall, mining output declined by 0.5% q/q in 4Q25, suggesting that the mining sector dragged GDP growth in the final quarter of 2025.
Also on Thursday, manufacturing production data for January will be released. Manufacturing output (not seasonally adjusted) declined by 1.4% y/y in December, following a 2.0% decrease in November. Seasonally-adjusted production fell by 1.2% m/m, after declining by 2.1% in November. The largest detractors were food and beverages; wood and wood products; paper, publishing and printing; basic iron and steel; non-ferrous metal products and metal products and machinery. As a result, manufacturing output declined by 0.5% in 4Q25, underscoring a drag on GDP growth in the final quarter of 2025.
Weekly Round-Up: Economics from Around Broader Africa
FirstRand Group has a presence in several other African countries and conducts extensive research into these economies. As part of our thought leadership, we will include our views on Botswana, Eswatini, Ghana, Lesotho, Mozambique, Namibia, Nigeria, and Zambia in this publication. Below is a summary of our medium-term outlook, where most countries are undergoing broad macroeconomic rebalancing. As structural reforms and fiscal consolidation improve, the operating environment and crowd-in private sector participation, asset and currency valuations should be supported, and inflation should remain within a comfortable range. This should allow monetary policy neutrality and uphold conducive financial conditions. That said, we worry about the adverse risks presented by ongoing geopolitical and trade tensions, destructive weather conditions, as well as political uncertainty and policy execution failures.
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