This study examined the impact of HIV/AIDS on the provincial economy of KwaZulu-Natal (KZN), South Africa. Drawing on a new survey of HIV prevalence amongst workers in KZN firms, the authors developed a population/demographic model to capture the effects of AIDS on workers across different occupations. The results from the population/demographic model were then linked to a CGE-microsimulation model. The results from this economic model indicate a significant decline in both GDP and per capita GDP as a result of HIV/AIDS. By 2025, the KZN economy will be 43% smaller than it could have been were it not for HIV/AIDS. Similarly, the rest of the country's economy will be 37% smaller by 2025. The results also indicate that while the detrimental growth-effect is large, the impact of HIV/AIDS on regional poverty headcounts is relatively small and that inequality would be higher in the absence of HIV/AIDS. In fact, the absolute number of poor people in KZN would be higher by 662,000 people in 2025. However, the population/demographic model also predicts that 11.8 million people will die of HIV/AIDS in South Africa during 2002-2025; of these over 3 million will be in KZN. Furthermore, the incentive to mitigate the effects of HIV/AIDS lies not only with poorer households and those with infected members, but also with the uninfected and higher-income households, who stand to benefit from faster economic growth and rising incomes.