South Africa's GDP has unexpectedly risen by 0.5% in the first quarter of 2026, offering a glimmer of hope amid economic difficulties. However, experts warn of underlying consumer weaknesses and rising geopolitical tensions that could threaten future growth.
Image: Shelley Kjonstad/Independent Media
South Africa's Gross Domestic Product (GDP) for the first quarter surprised on the upside showing growth of 0.5% quarter-on-quarter and annual growth moving close to 2%.
While the result offered some encouragement in a difficult economic environment, Citadel Chief Economist, Maarten Ackerman, cautioned that the data reflected conditions before the latest global and domestic headwinds began to intensify.
Ackerman told Business Report, “SA’s first-quarter GDP number came in slightly ahead of expectations and confirms that the economy still has the underlying capacity to generate growth. However, it is important to recognise that this is largely a pre-geopolitical conflict number, supported by the continuation of favourable tailwinds from 2025, including strong commodity prices and another solid contribution from agriculture.”
“Agriculture was the standout performer in the quarter, expanding by 3.9%, while the finance sector remained one of the economy’s most consistent contributors. Encouragingly, growth was relatively broad-based, with all sectors except manufacturing contributing positively,” he highlights.
“A broader-based growth profile is a positive signal, because it suggests that the recovery is not being driven by one sector alone; the fact that most sectors contributed positively gives us a better foundation than a narrowly concentrated growth outcome would have done,” he said.
“Beneath the positive headline number, there are signs of fragility. Household consumption, a key driver of SA’s consumer-led economy, slowed sharply to just 0.1% in the quarter, down from 1.2% in the previous quarter,” notes Ackerman.
“The sharp slowdown in household consumption is concerning, consumers were already under pressure before the latest geopolitical and inflationary risks emerged, which suggests that households may find the coming quarters increasingly difficult,” he cautioned.
Since the tensions began between the United States and Iran, global oil prices soared, financial markets have been up and down and inflation began to tick upwards.
Fuel prices in South Africa were heavily impacted, with the government taking evasive action by providing some fuel relief measures by cutting the levy in the fuel price for a couple of months to help cushion the price shocks on consumers.
Neil Roets, CEO of Debt Rescue, said that the latest fuel price changes highlight the growing strain on consumers who have little room left in their budgets to absorb additional costs.
"For many South Africans, the June fuel price adjustment feels like taking one step forward and two steps back," said Roets.
"What makes this increase particularly difficult is the timing. Consumers have barely had an opportunity to absorb the recent 0.25% interest rate hike and are now confronted with another increase relating to a major monthly expense," he said.
"The danger is that people often look at individual increases in isolation. A higher petrol bill may not seem catastrophic on its own. A slightly higher bond repayment may appear manageable. However, consumers do not experience these costs separately. They experience them collectively."
He added that many families have already exhausted traditional cost cutting measures.
"Over the past few years, families have already cut discretionary spending, reduced entertainment budgets, postponed purchases and sought cheaper alternatives wherever possible. The ability to absorb additional increases is becoming increasingly limited."
“The outlook for the rest of 2026 is more challenging. Since the end of the first quarter, rising geopolitical tensions in the Middle East have pushed energy costs higher, inflationary pressures have intensified and tighter monetary policy is likely to keep interest rates elevated for longer. This places further pressure on consumers and businesses,” Ackerman said.
“Domestically, agriculture, one of the key drivers of recent growth, is also likely to come under pressure in the coming quarters as disease outbreaks, adverse weather conditions, flood-related infrastructure damage and higher input costs, particularly fuel and fertiliser, weigh on output,” Ackerman noted.
“While the Q1 data gives us a better starting point, the growth outlook has become more difficult; the combination of higher energy costs, sticky inflation, elevated interest rates and pressure on agriculture means that economic momentum is likely to slow as the year progresses,” Ackerman explained.
This past week, however, the South African Reserve Bank (Sarb) warned that growing global uncertainty are increasing risks to the domestic financial system, but South Africa remains better positioned than many of its peers to weather the storm.
Speaking at the release of the first edition of the 2026 Financial Stability Review (FSR) on Wednesday, Sarb Governor Lesetja Kganyago said the outlook had deteriorated significantly since the central bank's previous review in November 2025, largely due to the escalating conflict in the Middle East and its impact on the global economy.
"When we released the previous edition of the FSR in November last year, the outlook was positive. South Africa had been removed from the FATF greylist; we had our first sovereign credit rating upgrade in almost two decades; there was growing evidence of progress in implementing structural reforms; and fiscal dynamics were improving," Kganyago said.
"The Middle East crisis that began in late February is just one of those exogenous shocks, like Covid and the Russia-Ukraine conflict, that you can't really forecast but which nonetheless transform the outlook. We had oil at $60 a barrel, inflation at 3%, and we were cutting rates. Now oil is around $100 a barrel, inflation at 4% and rising, and we have raised rates."
"We must now accept that oil prices will not be back at February levels any time soon. The world economy is in for a bumpy ride, taking South Africa along with it. This reality unfortunately suggests we will see pressure building up in the financial system in the coming months."
Kganyago said the country's financial system had repeatedly demonstrated its ability to withstand crises.
"Our financial system is nothing if not battle-tested," the Sarb governor said.
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