Although the war in the Middle East has significantly impacted global and domestic financial markets as well as energy prices, it did not materially affect domestic real economic activity in the first quarter of 2026.

^{30 June 2026}

As such, South Africa’s real gross domestic product (GDP) increased further by 0.5% in the first quarter of 2026, marking the sixth consecutive quarter of expansion. The increase was supported by continued growth in the tertiary sector and a rebound in the primary sector, while economic activity contracted further in the secondary sector. When excluding the agricultural sector, real economic growth remained steady at 0.4% in the first quarter of 2026.

The rebound in the real gross value added (GVA) by the primary sector reflected higher agricultural and mining output in the first quarter of 2026. Agricultural output increased at a faster pace due to the higher production of field crops and horticultural products, supported by favourable weather conditions associated with La Niña-induced rainfall. However, the outbreak of animal diseases over the past year, notably foot-and-mouth disease and African swine fever, constrained livestock production and restricted access to certain export markets. Mining output was mainly boosted by the higher production of platinum group metals (PGMs) and gold, which more than offset the lower production of iron ore and coal during the first quarter.

The real GVA by the secondary sector contracted for a third consecutive quarter in the first quarter of 2026, due to the further decline in manufacturing output as production was hampered by subdued global demand, rising input costs and supply chain disruptions, among other factors. The real output of the electricity, gas and water sector increased in the first quarter of 2026 as a larger volume of electricity was consumed. The real GVA by the construction sector reverted to an increase in the first quarter, reflecting increased activity in non-residential buildings and construction works.

The continued expansion of tertiary sector output in the first quarter of 2026 was broad-based. Growth in the real GVA by the commerce sector slowed slightly due to weaker retail trade activity. The real output of the transport, storage and communication services sector rebounded in the first quarter, reflecting increased activity in land and air transport as well as transport support services. Although growth in the real GVA by the finance, insurance, real estate and business services sector slowed somewhat, output was supported by increased activity in the monetary intermediation and auxiliary activities subsectors.

Real gross domestic expenditure (GDE) decreased by 0.3% in the first quarter of 2026, owing to a drawdown in inventories and a decline in real gross fixed capital formation. Growth in real final consumption expenditure by households slowed sharply, while that by general government accelerated slightly. Real net exports contributed the most to real GDP growth in the first quarter of 2026, at 0.9 percentage points, reflecting higher export volumes and notably lower import volumes. By contrast, the change in real inventories and gross fixed capital formation subtracted 0.3 and 0.2 percentage points respectively from overall economic growth in the same quarter.

Growth in real final consumption expenditure by households moderated sharply from 1.2% in the fourth quarter of 2025 to 0.1% in the first quarter of 2026. Real consumer spending on durable, semi-durable and non-durable goods increased at a slower pace, while expenditure on services declined over the same period.

Household debt increased at a slower pace in the first quarter of 2026 as growth in most categories of credit extended to households moderated. However, the increase in debt still exceeded that in households’ nominal disposable income, with the ratio of household debt to nominal disposable income rising to 62.2% in the first quarter of 2026 from 61.8% in the preceding quarter. Households’ cost of servicing debt relative to disposable income remained unchanged at 8.4% over this period, reflecting the stable prime lending rate.

Households’ net wealth decreased slightly in the first quarter of 2026 as total assets decreased and total liabilities increased. The lower value of assets stemmed largely from a decline in share prices, while the value of housing stock increased marginally. Although the FTSE/JSE All-Share Index (Alsi) reached an all-time high of 128 456 index points on 27 February 2026, the index declined in the first quarter of the year. This reflected a sharp correction in March 2026, in line with international bourses due to the impact of the war in the Middle East, with the Alsi declining by 11.2% and ending a strong 12-month rally.

Real gross fixed capital formation decreased in the first quarter of 2026 following two consecutive quarterly increases. The contraction was driven by lower fixed investment by the private sector, while fixed capital spending by the public sector increased. Real capital outlays on residential buildings, machinery and equipment and the other assets category decreased, while fixed investment in non-residential buildings, transport equipment and construction works increased.

Total household-surveyed employment decreased sharply by 345 000 in the first quarter of 2026, with broad-based job losses recorded across the three main sectors. The decrease in formal sector employment was largely driven by substantial job losses in the community and social services sector, which coincided with the conclusion of Phase V of the Presidential Youth Employment Initiative in November 2025, while employment in the informal and household sectors also decreased.

South Africa’s total labour force decreased slightly further to 24.8 million in the first quarter of 2026 as the decrease in the number of employed persons marginally outweighed the significant increase in the number of officially unemployed persons. Consequently, the official unemployment rate increased significantly from 31.4% in the fourth quarter of 2025 to 32.7% in the first quarter of 2026, while the seasonally adjusted unemployment rate rose from 31.7% to 32.5% over the same period. The number of discouraged job seekers also increased sharply in the first quarter of 2026.

Growth in formal non-agricultural nominal remuneration per worker accelerated in the fourth quarter of 2025, driven by faster wage growth in the private sector. The real take-home pay of formal non-agricultural employees also grew at a slightly faster pace over this period. Labour productivity in the formal non-agricultural sector increased at a faster pace in the fourth quarter of 2025 as year-on-year growth in non-agricultural output accelerated, while employment contracted further. At the same time, growth in nominal unit labour cost accelerated as year-on- year remuneration growth outpaced output growth.

The escalation in geopolitical tensions in the Middle East exerted upward pressure on global and domestic consumer prices, with the outbreak of the war in the region resulting in a surge in international crude oil and refined petroleum product prices and intensified supply chain disruptions. Brent crude oil prices increased from an average of US$64.46 per barrel in January 2026 to US$103.90 per barrel in May, while domestic petrol and diesel price inflation accelerated sharply to 24.8% and 53.8% respectively in May. Consequently, after remaining subdued throughout 2025, both domestic producer and consumer price inflation accelerated from March 2026, largely reflecting the surge in domestic fuel and air transport services prices. Underlying inflationary pressures also increased somewhat in recent months, primarily reflecting higher services price inflation, with core inflation rising to 3.8% in May 2026. By contrast, consumer food price inflation eased over this period, largely due to movements in meat and cereal product prices.

South Africa’s trade surplus widened significantly further in the first quarter of 2026 as the value of merchandise imports decreased, while that of merchandise and net gold exports increased. The terms of trade also improved further as the rand price of exported goods and services increased, driven largely by the higher prices of some commodities, especially gold and PGMs, while the prices of imports decreased.

The increase in merchandise exports in the first quarter of 2026 was driven by the higher export values of mining and agricultural products, while manufacturing exports declined for a third consecutive quarter. The higher value of mining exports reflected increased exports of PGMs, owing to higher rand prices and larger volumes, along with higher exports of mineral products as well as pearls, precious and semi-precious stones. Mineral exports were lifted by higher exports of especially iron ore and, to a lesser extent, manganese ore and coal. The significantly higher iron ore exports were supported by a marked increase in the volume of dry bulk cargo handled at the Saldanha iron ore terminal after a maintenance shutdown suppressed volumes in the fourth quarter of 2025.

The lower imports of mining, manufactured and agricultural products led to a further decline in the value of merchandise imports in the first quarter of 2026. The decrease in manufacturing imports was broad-based, while the lower value of mining imports reflected reduced imports of mineral products as well as pearls, precious and semi-precious stones. Mineral imports fell mainly because of lower imports of crude oil and refined petroleum products, particularly petrol and diesel. However, the value of aviation kerosene imports increased as jet fuel prices rose in the first quarter of the year.

The larger trade surplus outweighed the slightly smaller deficit on the services, income and current transfer account, resulting in a significantly larger surplus on the current account of the balance of payments, from 0.6% of GDP in the fourth quarter of 2025 to 2.4% of GDP in the first quarter of 2026.

The net outflow of capital on South Africa’s financial account of the balance of payments more than halved to R23.1 billion in the first quarter of 2026. On a net basis, portfolio investment, financial derivatives and reserve assets recorded outflows, while direct investment and other investment recorded inflows.

South Africa’s total external debt increased further from US$193.0 billion at the end of September 2025 to US$200.3 billion at the end of December. This reflected a notable increase in foreign currency-denominated external debt, mainly attributable to national government issuing two international bonds and an increase in the domestic private banking sector’s foreign loans and advances.

South Africa’s positive net international investment position declined to R2 018 billion at the end of December 2025 as the market value of foreign assets decreased slightly and that of foreign liabilities increased, mainly due to price valuation effects following the increase in the Alsi during the fourth quarter of 2025. The appreciation in the exchange value of the rand, as reflected by the 3.7% increase in the nominal effective exchange rate (NEER) over this period, had a larger impact on foreign assets than on foreign liabilities.

The NEER subsequently decreased by 2.0% in the first quarter of 2026 as the gains in January and February were more than reversed in March following the outbreak of the war in the Middle East. Several emerging market currencies, including the rand, depreciated against the US dollar in March, while the abrupt increase in financial market volatility reflected the heightened global economic uncertainty. The rand was among the worst-performing currencies during that month as demand for safe-haven assets increased amid intensifying risk aversion. Renewed inflation concerns following the sharp increase in crude oil prices prompted most major central banks to pause policy easing, with expectations reverting to more restrictive monetary policy. The NEER then increased again from the end of March 2026 to 12 June, supported by improved risk sentiment following optimism about a possible peace agreement in the Middle East, further increases in the prices of certain commodities and positive credit rating announcements during the first week of June. However, the situation in the Middle East remained uncertain and continued to contribute to volatility in the exchange value of the rand.

Domestic bond yields increased abruptly following the outbreak of the war, with the yield on 10-year South African rand-denominated government bonds rising from 7.92% on 25 February 2026 to a recent high of 9.33% on 30 March. This reflected the sharp increase in crude oil prices, which renewed upside risks to global inflation and raised expectations of higher policy rates, as well as the depreciation in the exchange value of the rand and net sales of domestic bonds by non-residents as investors moved towards safer assets. The 10-year bond yield then declined to 8.66% on 12 June, supported by a stronger rand, net purchases by non-residents of domestic bonds, a temporary reduction in South Africa’s general fuel levy and improved sentiment around a possible ceasefire in the Middle East.

Year-on-year growth in the broadly defined money supply (M3) accelerated in the early months of 2026, mainly due to stronger growth in corporate deposits, while household deposit growth remained subdued. Growth in corporate deposits was driven by a sharp increase in the deposit balances of financial companies, largely reflecting increased deposits held by institutions engaged in securities trading and investment management activity as well as heightened risk aversion and uncertainty in financial markets. Growth in bank credit extended to the domestic private sector also accelerated in the early months of 2026, driven especially by general loans to the corporate sector. The acceleration in household credit growth was more moderate, although fairly broad-based among the different credit categories.

The preliminary non-financial public sector borrowing requirement decreased significantly by R92.8 billion year on year to R187.4 billion in fiscal 2025/26. This resulted largely from the notably smaller cash deficit of the consolidated general government as well as the shift by non-financial public enterprises and corporations from a cash deficit to a cash surplus.

National government’s preliminary cash book deficit narrowed slightly to R330.9 billion in fiscal 2025/26, lower than the estimate in the 2026 Budget Review. In addition, the primary surplus increased to R86.7 billion in fiscal 2025/26, surpassing the outcome recorded in fiscal 2024/25 and exceeding both the original and revised projections in the 2025 Budget Overview and the 2026 Budget Review respectively. Revenue grew at a much faster pace than in the previous fiscal year, reflecting strong collections across all tax categories. National government’s total gross loan debt nevertheless increased by 7.2% year on year and amounted to 78.5% of GDP as at 31 March 2026 compared with 77.0% a year earlier.