Major threat to South Africa’s economy that is out of its control

South Africa’s minor economic recovery is at risk of being wiped out by a global economic slowdown, with the country highly vulnerable to external shocks. 

The country’s economic recovery has largely been driven by increased consumer spending, which is based on short-term cyclical factors. 

For sustained economic growth that is resilient, the country needs fixed investment, which has been steadily declining for the past two years, to pick up. 

This is feedback from Econometrix chief economist Dr Azar Jammine, who said a global economic slowdown could wipe out half of South Africa’s expected economic growth in 2026. 

While a substantial slowdown is unlikely, major economies outside of the United States have shown signs of stagnation over the past few years. 

Crucially for South Africa, it appears as though China’s economic growth is slowing due to demographic headwinds and a downturn in its real estate market. 

As the largest consumer of South Africa’s commodities, the performance of the Chinese economy is particularly important for the country with regard to foreign exchange earnings, the strength of the rand, and its mining sector. 

Jammine told CNBC Africa that there are positive signs of an economic recovery in South Africa, with the country posting consecutive quarters of growth. Its GDP growth for 2025 is likely to come out higher than predictions made at the beginning of the year. 

This improvement has been driven by ongoing reforms to create a competitive electricity market, the end of load-shedding, increased private participation in logistics, and soaring commodity prices. 

The state’s financial health is also improving, with the National Treasury’s policy of fiscal consolidation putting it on track to stabilise its debt burden in the current financial year. 

This has translated into the country receiving its first credit ratings upgrade in a decade, with S&P raising the country’s rating to BB in November 2025. 

Jammine warned that this recovery is still fragile, with there being little indication that the positive momentum will continue. 

Business confidence remains in negative territory, and fixed investment growth is just above 1%, meaning the country’s economic growth has been largely driven by consumer spending. 

Global impact

South Africa’s economy is highly vulnerable to external shocks given its nature as a relatively small economy that is highly open, with much of its GDP tied to trade in the form of imports or exports. 

This leaves it vulnerable to currency fluctuations, particularly those related to the US dollar, and at the mercy of demand for its commodities. 

“You have S&P, who are encouraged by what is going on in South Africa, but Moody’s is much more cautious. That is the kind of environment we are in,” Jammine said. 

“Yes, there are green shoots and signs of a bottoming out, but not everyone is convinced of that as yet. It is still very early days.” 

Strangely, a large chunk of this caution stems from global events due to elevated uncertainty regarding US trade policy and geopolitical tension. 

“On top of everything, we have a very uncertain international environment, and that is where a lot of questions should be asked,” Jammine said. 

These questions centre around the potential negative impact of a global economic downturn on South Africa’s economic prospects. 

“A global economic downturn would scupper much of the progress South Africa has made. That is, of course, out of our control,” Jammine said. 

While South Africa may benefit in the short term from elevated gold and platinum prices, over the long run, the impact on the local economy could be severe. 

Jammine’s warning about the potential impact of external shocks on the local economy echoes that of the Reserve Bank, which outlined the impact a bursting of the artificial intelligence bubble in American technology stocks can have on South Africa. 

American technology giants, particularly the so-called Magnificent 7 of Apple, Google, Microsoft, Meta, Amazon, Nvidia, and Tesla, have seen their valuations soar in recent years since the launch of ChatGPT in November 2022. 

This has made the fortunes of global stock markets increasingly tied to this handful of companies, which now make up 35% of the S&P 500 index. 

With American equities making up over 60% of global market capitalisation, this means the world is increasingly exposed to the performance of these companies.

The Reserve Bank noted that a sharp decline in the value of the Magnificent 7 could trigger a tightening in global financial conditions as risk aversion rises. 

“Historically, such episodes have been unfavourable for emerging markets, leading to portfolio outflows, weaker exchange rates, and higher risk premia,” it said. 

South Africa is particularly vulnerable to these external shocks, given the country’s stagnant economy, high government debt burden, and the fact that it is a very open economy. 

“For South Africa, these spillovers could amplify domestic market volatility and weigh on asset prices, particularly in the equity, fixed-income and currency markets,” the Reserve Bank said.