South Africa’s economic outlook: resilience amid rising global uncertainty
South African growth: South Africa’s economic growth in 2025 accelerated from 2024’s anemic growth. However, relative to forecasts at the start of 2025, GDP growth still surprised on the downside—once again. The South African National Treasury had forecast 2025 GDP to expand by 1.4% during Budget 2025 (May 2025). This was on account of persistent global uncertainty and ongoing domestic structural constraints. Despite these challenges, the substantial improvement in electricity supply, early progress in logistics reforms, and continued infrastructure investment provided some support to economic activity and are expected to help underpin a modest strengthening in growth going forward. 2026, however, sees the South African economy, like the rest of the global economy, facing extraordinary headwinds, mostly related to the war in Iran, and we expect this to have a detrimental impact on growth during the current year.
SA bond market: The sharp rise in global uncertainty during H2-2025 and into 2026 has increasingly filtered through to South Africa’s financial markets, particularly the government bond market. However, despite the current volatility, South African assets, including the rand, have remained relatively more resilient than might otherwise have been expected, supported by several important domestic developments that materially improved investor sentiment in late 2025 and early 2026.
Impact of the Iran war on SA food prices: For South Africa, the Iran conflict presents an additional inflation risk through higher fertilizer and energy costs. As the country relies on imported fertilizer inputs, sustained price increases could raise agricultural production costs and place upward pressure on food prices over the coming quarters. This could reverse some of the recent progress in lowering inflation, weigh on household purchasing power, and increase pressure on the SARB to maintain a cautious monetary policy stance.
Mining: While the South African economy, including the mining sector, continues to operate under constrained conditions amid persistent infrastructure bottlenecks, logistical inefficiencies, regulatory uncertainty, and several years of weak business confidence, the latest survey data of mining companies provides a degree of cautious optimism. The improvement in the SA investment attractiveness index suggests that investor perceptions of South Africa’s mining environment have strengthened meaningfully, likely reflecting factors such as easing electricity constraints, improved commodity prices, particularly for gold and PGMs, and renewed momentum around logistics and infrastructure reform.
Households: In Q4-2025, growth was driven primarily by resilient household consumption expenditure, which rose by 1.2% q/q, marking a seventh consecutive quarter of positive growth and reaffirming the central role of consumer spending in supporting economic activity. However, higher borrowing costs, rising living expenses and renewed inflationary pressures are likely to weigh on household spending going forward, posing downside risks to both consumer demand and broader economic growth.
Inflation: Consumer inflation accelerated sharply to 4% in April, from 3.1% in March, marking the highest headline inflation reading since August 2024. The major driver behind the surge in inflation was the sharp increase in fuel prices in April. The fuel index rose by 18.2% month-on-month, the steepest monthly increase since the current CPI series began in 2008, according to Stats SA.
The SA exchange rate: The rand strengthened significantly through late 2025 and into early 2026, supported by elevated commodity prices, improved domestic macroeconomic fundamentals, contained inflation, and a generally favorable global environment for emerging market assets. Although the currency has since surrendered some of these gains amid heightened geopolitical tensions, rising oil prices, and increased global risk aversion, it remains considerably stronger than levels seen during much of 2024 and early 2025. The rand’s recent performance highlights both its sensitivity to external shocks and the growing role of improved domestic fundamentals in enhancing its resilience.
The fiscus: Revenue collection remained robust during the first nine months of FY2025/26, supported by broad-based growth across major tax categories, resulting in revenue increasing as a share of GDP. Strong PAYE collections, resilient corporate profitability, and elevated commodity prices provided meaningful support to fiscal revenues despite the economy's modest growth performance. However, the revenue outlook has become more uncertain as rising geopolitical tensions, renewed inflationary pressures, and tighter monetary policy are expected to weigh on economic activity, potentially moderating future growth in tax collections.
Now read on...
Register to sample a report