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SA’s gross domestic product increased by 0.5% in the first quarter of 2026, showing some positive momentum despite ongoing global challenges.
The military conflict in the Middle East that began at the end of February significantly changed SA’s economic outlook for 2026 and impacted the global community.
The closure of the Strait of Hormuz led to a major supply shock.
Brent crude oil price estimates rose sharply, with some scenarios predicting oil could exceed $100 a barrel.
This increased the cost of diesel, jet fuel, and essential commodities such as fertilisers and aluminium.
The International Monetary Fund lowered its 2026 global growth forecasts to 2%.
This shock stalled the post-pandemic trend of lower inflation, causing a shift in global monetary policy.
Just as central banks were preparing for a policy shift, energy shocks renewed inflationary pressures.
The international trade environment faced severe fragmentation, driven by protective policies and the use of economic tools for strategic advantage.
High trade barriers and aggressive tariffs dampened global export momentum.
Trade uncertainty grew with the mandatory joint review of the United States-Mexico-Canada Agreement (USMCA) and the expiration of several temporary trade agreements around the world.
As a result, capital is moving inward or seeking friendly partnerships, isolating developing economies from the cross-border investment needed for long-term growth and jobs.
SA’s 0.5% quarter-on-quarter growth came not from overcoming global challenges but from internal regulatory reforms and careful macroeconomic policies.
The country entered 2026 after benefiting from ongoing rate cuts by the South African Reserve Bank (SARB), which reduced interest rates by a total of 100 basis points through late 2025.
Along with the National Treasury’s 2026 Budget Review, establishing a lower 3% inflation target helped boost confidence among local and international investors.
This credibility, along with progress in addressing its Financial Action Task Force (FATF) grey-listing issues, reduced borrowing costs, stabilised the rand at about R17, and softened the impact of early-quarter capital flight.
The government’s structural reform initiative, Operation Vulindlela, has started to yield positive results by improving operational efficiency and reducing bottlenecks in key sectors.
The national grid remained stable without any load-shedding in the first quarter of 2026, driven by increased private sector renewable energy connections and utility reforms initiated in earlier fiscal cycles, ensuring uninterrupted commercial operations.
Freight rail volumes began to stabilise, and public-private partnerships at key ports allowed the transport, storage and communication sectors to positively contribute to GDP, offsetting global supply chain issues.
Micro-reforms, such as reducing the time to secure critical water licences from 300 days to 90 days, helped unblock stalled commercial and agricultural projects.
After previously volatile seasons, the agricultural sector saw dramatic improvement, becoming a key supply-side driver.
Favourable late-season rainfall led to strong crop yields and a bumper harvest.
Additionally, the sector benefited from lucrative horticultural fruit exports to international markets before mid-year global shipping disruptions occurred.
As the major component of the South African economy, the financial sector continued to grow steadily.
The slightly lower domestic interest rates early in the quarter helped boost corporate transactions, credit extensions and banking services, adding 0.2 of a percentage point to total GDP.
Despite the national grid achieving stability with no active load-shedding, largely due to private generation connections from Operation Vulindlela, the state utility sector contracted.
Ongoing maintenance and high operational costs led the utilities sector to negatively impact production GDP.
While the broader trade sector grew thanks to wholesale and tourism, retail trade sales saw no growth.
Consumers focused on paying debts and essential services instead of discretionary spending.
The mining industry took advantage of rising geopolitical tensions early in the year.
Anticipating global instability, demand for safe-haven assets increased, boosting production.
SA’s output was driven by strong performances in platinum group metals, gold, diamonds and chromium ore, compensating for a weaker global market for thermal coal.
Even with overall growth, vulnerabilities remained in the industrial and goods-producing sectors.
The manufacturing sector experienced its second consecutive quarterly decline.
This structural issue was evidenced by the Purchasing Managers Index, which remained below the neutral 50-point mark, dropping to 47.4 in February.
A sharp decline in business confidence stifled investment, particularly in petroleum, chemical products, rubber, plastic and basic iron and steel.
High domestic input costs and overheads reduced profitability for manufacturers.
For most South Africans, a 0.5% quarterly growth feels nearly invisible.
While this increase indicates some stability, it does not suggest prosperity.
In Q1, South Africans enjoyed a low point in inflation.
Food prices stabilised briefly, electricity remained steady with no load-shedding, and borrowing costs were slightly lower.
When an economy grows slower than its population, the overall economic size increases only marginally, resulting in smaller individual shares.
Wealth in SA is not keeping pace with population growth.
In Q1, people prioritised spending on essentials and services, leaving no extra cash for discretionary purchases.
Budgets for the middle and lower classes remain severely constrained.
For the economy overall, positive growth helps ensure tax revenues do not collapse, allowing the National Treasury to manage its debt commitments and maintain its inflation target.
The major geopolitical shock, the US-Iran conflict, began in late February.
The resulting spikes in energy costs, such as a 35.4% increase in diesel and a 15.2% rise in petrol in April, impacted the economy in Q2.
Therefore, Q1’s growth served as a temporary buffer before facing a much tougher economic downturn mid-year.
In the first quarter of 2026, SA again faced jobless growth driven by two main structural realities.
The sectors contributing to Q1’s GDP growth, finance and mining, are highly automated and capital-intensive.
They can increase output and benefit from rising global commodity prices without needing to hire large numbers of new workers.
In contrast, sectors that employ many semi-skilled and unskilled labourers suffered significant layoffs.
The construction sector alone lost 110,000 jobs, and community and social services shed 206,000 jobs.
Manufacturing continued its long-term decline, decreasing by 1% in Q1.
- Lubabalo Cengani is currently the operations officer for Lawula Investments. He writes in his personal capacity.