SA 2025 financial flows: Risk aversion, lower foreign inflows
A South African Reserve Bank note details the flow of funds in 2025, highlighting improved domestic economic activity and shifts in sectoral financing. The analysis reveals increased risk aversion among investors and a decline in net capital inflows from the foreign sector.
Domestic growth strengthens, capital flows shift
The South African Reserve Bank's flow-of-funds analysis for 2025 indicates improved domestic economic activity, with real GDP growth accelerating from 0.5 percent in 2024 to 1.1 percent in 2025.
This was bolstered by a strong agricultural sector, South Africa's exit from the FATF greylist, and the SARB's new 3 percent inflation target.
Gross saving by domestic institutional sectors increased by 3.9 percent to R1 025 billion in 2025, largely due to reduced government dissaving.
Gross capital formation also rose moderately to R1 060 billion.
However, net capital inflows from the foreign sector declined from R47.7 billion in 2024 to R35.0 billion in 2025, reflecting global risk aversion and reduced emerging market exposure.
Non-residents' net acquisition of domestic financial assets decreased from R58.6 billion to R37.8 billion, with net sales of domestic shares and reduced financial derivatives exposure totaling R269 billion.
Investors prioritize liquidity and stability
Inter-sectoral flows in 2025 saw financial intermediaries channel funds to general government and non-financial business enterprises, while households directed funds to intermediaries.
A notable shift in financial asset composition occurred: cash and deposits, though dominant, decreased from 36.3 percent in 2024 to 29.0 percent in 2025, reflecting a preference for liquidity.
Conversely, loans rose significantly from 19.3 percent to 27.0 percent, driven by increased credit demand from private corporates and households, supported by lower interest rates.
The negative contribution of shares intensified from 1.9 percent to 8.8 percent, indicating heightened risk aversion.
This overall trend points to a more conservative investment stance in 2025, prioritizing stability and predictable returns.
Cautious recovery, wary investors
South Africa's domestic economic improvements in 2025 are encouraging, yet declining foreign capital inflows and conservative investment strategies signal underlying fragilities.
Investors remain wary, prioritizing liquidity and stability, which could constrain long-term growth and capital formation.
This suggests the economy remains highly susceptible to global risk aversion, necessitating continued vigilance and structural reforms.