Dark clouds gather over South Africa’s economy 

South Africa’s economic recovery has hit a speed bump in the form of elevated oil prices as supply from the Middle East is disrupted. 

While the conflict appears to be in limbo between all-out war and peace, the impact on South Africa has already been significant. 

Standard Bank chief economist Goolam Ballim estimates the impact will shave off half a percentage point of South Africa’s economic growth for 2026. 

This seems small on the face of it, but with South Africa only expected to grow by 1.5% to 1.7% at the beginning of 2026, the conflict will drop the country close to the 1% mark. 

As such, 2026 will see a similar performance from the South African economy as the past 15 years, when it has languished compared to its peers. 

Ballim said that South Africa’s economy has underperformed for the past decade at least, averaging growth of less than 1% for much of that time. 

This has dragged the performance of the rest of southern Africa, given South Africa’s relatively large economy on the continent. 

“At least in the near term, which is decidedly separate from the long term, African growth broadly is going to be softer,” Ballim explained. 

“Southern Africa, in particular, will be lower because South Africa is a net oil importer. Because of this, it has probably foregone 0.5 percentage points of growth from January.” 

Ballim noted that the story around Africa has shifted significantly, with investors, institutions, and businesses focusing on East Africa as the future growth driver. 

Southern Africa has largely stagnated as a result of South Africa’s poor performance, while West Africa remains heavily exposed to fluctuations in commodity prices. 

Ballim expects East Africa to grow between 5% to 7% in the medium term, with West Africa hovering around 3% to 5%. 

Southern Africa will bring up the rear, even if South Africa gets things right, at 1% to 3% until 2028. 

“South Africa has underperformed for the past decade and its weighting brings down the rest of the region,” Ballim said. 

Ballim estimates that 1% of economic growth from South Africa translates into 0.7% of regional growth. So, when it underperforms, it drags the region with it. 

The script has flipped

The situation South Africa finds itself in currently is vastly different from the picture painted for the country at the beginning of 2026. 

South Africa entered the year with strong momentum on its side from improving local finances, falling inflation, and declining interest rates. 

All of this combined to boost consumer spending, which was turbocharged by early access to retirement savings under the new two-pot system. 

Increased consumer spending translates into faster economic growth, with much of South Africa’s economy driven by household disposable income. 

As such, South Africa began the year with optimistic economists projecting 2% growth for the first time in over 15 years. 

2026 was seen as a stepping stone towards much faster economic growth in the medium term, picking up to 3% in 2027 and 2028. 

This forecast has been blown out of the water by events in 2026 so far. Economic growth has been slashed to just above 1% and, in the case of the World Bank, it risks dropping below 1%. 

The script has flipped due to the conflict in Iran, which sent oil prices surging and inflation soaring to 4.5% in May. 

This has pushed the Reserve Bank to hike interest rates by 25 basis points, with another hike on the cards at the end of July. 

The restart of hostilities in the Middle East has not sent the oil price surging to levels seen in March and April, but it has stopped it from falling to pre-war prices. 

This is likely to push the Reserve Bank to hike interest rates again as inflation remains well above its 3% target point and fuel prices are not falling as quickly as desired. 

Rising inflation and interest rates have one main impact – they hit household disposable income hard and result in falling consumer spending. 

As such, the momentum gathered towards the end of 2025 has seemingly hit a wall. Much of the country’s growth now relies on the implementation the government’s reform agenda, which has been painfully slow.