South Africa Economy Contracts 0.2% in Q2 2026 as Manufacturing and Mining Weigh on Growth
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GDP declines for the first time in six quarters as weaker trade, manufacturing and mining activity weighs on economic performance
South Africa’s economy contracted by 0.2% quarter-on-quarter (QoQ) in Q2 2026, following revised growth of 0.4% in Q1, according to the latest economic update. The contraction marked the first decline after six consecutive quarters of growth, with weaker activity in mining, trade and manufacturing weighing on overall output.
Mining and Manufacturing Record Declines
Mining activity contracted by 3.0% QoQ during Q2, reflecting lower production of platinum group metals (PGMs), manganese ore, gold and iron ore.
The trade and accommodation sector declined by 1.9%, driven by softer activity in wholesale trade, motor trade, and food and beverages. Retail trade and accommodation activity remained comparatively resilient.
Manufacturing recorded its third consecutive quarterly decline, with seven of its ten divisions registering negative growth. Food and beverages, furniture and other manufacturing, and basic iron and steel, non-ferrous metals, metal products and machinery were among the largest negative contributors.
Some sectors recorded growth during the quarter. Transport, storage and communication expanded by 0.9%, supported by stronger land transport activity. Construction grew for a second consecutive quarter on higher residential and non-residential building activity, while agriculture increased on stronger production of horticultural products and field crops. However, these gains were insufficient to offset declines elsewhere.
Imports Rise Faster Than Exports
On the expenditure side, imports increased by 4.9% QoQ, mainly due to higher trade in machinery and electrical equipment and mineral products. Exports rose by 0.9%, supported by pearls, precious and semi-precious stones and precious metals.
Gross fixed capital formation contracted for a second consecutive quarter, with construction works and transport equipment among the largest negative contributors. The decline followed reduced investment by public corporations and private business enterprises.
General government consumption increased by 0.4%, while household consumption also grew by 0.4%. Within household consumption, the strongest increases were recorded in food and non-alcoholic beverages, alcoholic beverages, and restaurants and hotels.
2026 Growth Forecast Remains at 1.2%
Despite the Q2 contraction, South Africa’s GDP growth for 2026 is expected to reach around 1.2%, with a recovery anticipated during the second half of the year as some of the cost pressures affecting Q2 are expected to ease.
The South African Reserve Bank (SARB) also lowered its growth projections at its September 2026 Monetary Policy Committee meeting. The central bank now expects growth of 1.2% in 2026, 1.7% in 2027 and 1.9% in 2028, compared with its July projections of 1.4%, 1.7% and 1.9%, respectively.
The revisions reflect increased global uncertainty and lower disposable incomes following heightened tensions in the Middle East. Higher oil prices, inflationary pressures and weaker global growth are expected to weigh on household consumption and investment.
Headline Inflation Rises to 4.4%
South Africa’s headline inflation increased marginally to 4.4% year-on-year in August 2026, compared with 4.3% in July.
Transport contributed 1.2 percentage points to headline inflation, largely due to fuel prices, which increased by 20% YoY as higher global oil prices passed through to domestic fuel costs.
Housing and utilities inflation stood at 5.2%, contributing 1.3 percentage points, while insurance and financial services inflation remained at 5.7%, contributing 0.6 percentage points.
Food and non-alcoholic beverages inflation was 1.1% YoY, with higher crop production helping contain food price pressures. Core inflation, which excludes food, non-alcoholic beverages, fuel and energy, eased to 4.1% in August from 4.2% in July.
Inflation is expected to remain above SARB’s 3% target in the near term, with the outlook dependent on global oil prices and developments surrounding the Middle East ceasefire.
SARB Raises Repo Rate to 7.25%
The SARB’s MPC raised the repo rate by 25 basis points to 7.25%, effective 25 September 2026, in a unanimous decision.
The increase followed renewed fuel price pressures after a period of easing between June and August, while global interest rates also continued to move higher.
The SARB expects headline inflation to average above 5% later this year and into early 2027, with inflation projected to peak at 5.7% in November 2026 before gradually moving towards the 3% target by the end of 2027.
The central bank also raised its Brent crude oil assumptions to USD 90.9 per barrel in Q3 2026 and USD 95.1 per barrel in Q4 2026, compared with USD 78.5 and USD 75, respectively, at its July meeting.
Future monetary policy decisions are expected to remain dependent on developments in global energy markets, inflation expectations and the wider geopolitical environment.
Rand Strengthens Against US Dollar
Between March and August 2026, the South African rand appreciated by 3.4% against the US dollar. In August alone, the currency strengthened 1.7% month-on-month, averaging ZAR 16.181 per US dollar, compared with ZAR 16.461 in July.
The improvement was attributed mainly to external factors, including a weaker US dollar, firmer gold prices and supportive portfolio flows. Foreign investors also recorded their strongest weekly net purchases of South African government bonds since January during the first week of August.
South Africa’s relatively high interest-rate differential provided additional support to the rand, although renewed dollar strength following the US Federal Reserve’s September rate increase could limit further appreciation.
Trade Surplus Widens to ZAR 20.1 Billion
South Africa recorded a preliminary trade surplus of ZAR 20.1 billion in July 2026, compared with a revised surplus of ZAR 17.2 billion in June.
Exports increased 5.8% YoY to ZAR 194 billion, supported by machinery and electronics, mineral products and vegetable products. Imports also rose 5.8% to ZAR 173.8 billion, reflecting higher imports of vehicles and transport equipment, chemical products and original equipment components.
Between January and July 2026, exports increased 8.1% YoY to ZAR 1.3 trillion, while imports rose 6.0% to ZAR 1.2 trillion.
The trade balance remains exposed to higher petroleum import costs and exchange-rate volatility, which could place pressure on imports and affect the trade surplus in the coming months.