This is significantly lower than National Treasury's projection of 1.6% in 2026 and 1.8% over the medium term, reaching 2% by 2028, although the finance minister Enoch Godongwana has said they will review the country's economic growth forecast before October's mid-term budget.
Image: Ayanda Ndamane / Independent Newspapers
S&P Global Ratings has lowered South Africa’s economic growth forecast for 2026, warning that higher inflation, rising energy costs and the prospect of further interest rate increases will weigh on the economy over the next two years.
In its latest Economic Outlook for Emerging Markets, released on Thursday, S&P revised South Africa’s 2026 gross domestic product (GDP) growth forecast down by 0.2 percentage points to 1.3%, from 1.5% projected in March.
The ratings agency also cut its 2027 growth forecast by the same margin to 1.5%.
This is significantly lower than National Treasury's projection of 1.6% in 2026 and 1.8% over the medium term, reaching 2% by 2028, although the finance minister Enoch Godongwana has said they will review the country's economic growth forecast before October's mid-term budget.
Last week, the World Bank also revised downwards by 0.4 percentage points South Africa's 2026 forecast to 1.0% from a previous projection of 1.4% in January amid slower growth amid rising global uncertainty, higher energy prices and weaker international demand.
Although economists are optimistic that GDP growth of around 1.3% looks attainable in 2026, S&P emerging markets chief economist Elijah Oliveros-Rosen said consumer price pressures are likely to accelerate in the second half of the year, driven by higher fuel and food costs.
“Our GDP forecasts for South Africa are now 20 bps lower for 2026 and 2027, at 1.3% and 1.5%, respectively. We raised our average inflation forecast to 4.3% from 3.5%,” Oliveros-Rosen said.
“We expect the central bank to hike interest rates at least one more time this year, since we expect inflation to exceed 5% in the second half of 2026.”
The downgrade comes as S&P expects inflationary pressures across emerging markets to persist following disruptions linked to the Middle East conflict and higher global energy and food prices.
“Compared with our March baseline, we have raised our inflation projections and lowered our growth forecasts for most EM economies in Europe, the Middle East, and Africa,” S&P said.
“Energy inflation has picked up broadly across the region, particularly in Nigeria and Turkiye, and we expect food inflation to increase over the coming months due to higher transportation and fertilizer costs.”
The report forms part of S&P’s broader assessment of emerging markets, where growth prospects have weakened as economies grapple with the fallout from elevated commodity prices and lingering uncertainty around the implementation of the recent US-Iran peace agreement.
Although crude oil prices have eased since the agreement was signed a week ago, S&P cautioned that refined fuel products are likely to remain expensive for longer because of logistical bottlenecks, damaged infrastructure and inventory rebuilding. These factors are expected to keep inflation elevated across many developing economies.
Food prices are also emerging as a significant concern. S&P noted that higher fertiliser costs and the onset of El Niño conditions could push food inflation higher over the coming months.
South Africa was identified as one of the emerging markets most exposed to the weather phenomenon, which has historically been associated with droughts and rising agricultural prices.
The agency observed that several emerging market central banks, including South Africa’s, have already tightened monetary policy since the Middle East conflict began. Higher interest rates, while necessary to contain inflation, are expected to restrain household spending and business investment.
S&P now forecasts South Africa’s benchmark policy rate, which is currently at 7% per annum, to end 2026 at 7.25%, before easing to 6.75% in 2027.
Despite the downgrade, South Africa’s growth outlook remains slightly stronger than the 1.1% expansion estimated for 2025. The economy delivered a stronger-than-expected performance in the first quarter of 2026, expanding by 0.5% and marking a sixth consecutive quarter of economic expansion.
However, it continues to lag many of its emerging-market peers. S&P expects countries such as India, Vietnam and Indonesia to post growth rates above 5% in 2026, supported by strong domestic demand and investment linked to the global artificial intelligence and technology supply chain.
For South Africa, the ratings agency expects economic growth to remain modest over the medium term, improving only gradually to 1.8% by 2028 and 2029. Unemployment is forecast to remain exceptionally high at 31.8% in 2026 before edging lower in subsequent years.
BUSINESS REPORT