Tide is turning against South Africa

Nedbank CEO Jason Quinn has pointed out that the economic environment in which the bank operates has significantly changed since the beginning of the year. 

The bank, which is uniquely exposed to South Africa among the traditional Big Four of Absa, Standard Bank, FirstRand, and Nedbank, provides a reliable bellwether for the health of the local economy. 

As banking CEOs like to explain, the fortunes of traditional banking businesses are closely tied to broader investment and economic growth. 

This makes Nedbank, with 91% of its assets being held in South Africa, uniquely positioned to be used as a market for wider economic development in the country. 

Quinn admitted that this can be seen in the bank’s financial performance, with growth being relatively sluggish amid a stagnant economy. 

“From a financial performance, while our results for 2025 were slightly ahead of guidance, a 3% growth in diluted HEPS was not a satisfactory outcome for us,” Quinn said in the bank’s annual report. 

The bank is looking to rectify this by increasing its exposure to faster economies in the rest of Africa through its acquisition of a controlling stake in Kenyan lender NCBA. 

Many of Nedbank’s peers, particularly Standard Bank and the rest of the Big Four, have expanded meaningfully into the rest of Africa over the past three decades to capture value from faster-growing economies outside of South Africa. 

Nedbank broadly expected the 2026 financial year to see a continuation of the acceleration it experienced in the second half of 2025. 

With investor sentiment towards South Africa improving, a lower inflation target, and vital reforms gaining momentum, economic growth was broadly expected to quicken. 

“When we released our results in early March 2026, we announced that we expected banking conditions in SA to improve further in the coming years, as GDP growth for 2026 to 2028 is set to improve to approximately 1.5% to 1.8%,” Quinn said. 

The bank expected Inflation to remain around the Reserve Bank’s target of 3% due to a stable rand, low global oil prices, lower inflation expectations, and fewer supply-side challenges. 

“After a cumulative 150 bps cut in interest rates, it was forecast to be reduced by a further 50 bps, with a plausible scenario of flat rates,” Quinn explained.  

“Credit extension was forecast to remain relatively robust around 7% to 8%, supported by the anticipated recovery in the domestic economy and lower interest rates.”

This would have all boosted Nedbank’s top and bottom lines, with performance being further boosted by its restructuring efforts and acquisitions of iKhokha and NCBA. 

Nearly five months into 2026, this no longer seems to be the case. 

The tables turn

The optimism in South Africa’s economy at the beginning of 2026 has been dashed by geopolitical developments, particularly the conflict in the Middle East. 

South Africa’s highly open, yet very small, economy is highly vulnerable to external shocks such as those coming from the Middle East. 

The impact of the conflict on oil supply from the region has resulted in the price of fuel skyrocketing in South Africa, with a high likelihood that this will translate into prices rising across the board. 

This is likely to spur the Reserve Bank into action, with interest rate cuts effectively off the table and hikes becoming increasingly probable. 

“Following our initial assessment of developments in the Middle East, which have resulted in significantly higher oil prices, we now expect inflation to increase to above 4% in 2026,” Quinn said. 

In the bank’s worst-case scenario, inflation could even cross 5% if the war is prolonged and its impacts across markets deepen. 

“As a result, we are not likely to see any interest rate cuts this year. Our GDP growth forecast for 2026 has also been trimmed to 1.3%,” Quinn said. 

The International Monetary Fund recently cut its forecast for South Africa’s GDP growth in 2026 to 1%, which is below the level the country posted in 2025. 

South Africa’s Centre for Risk Analysis (CRA) explained that this is largely due to the cyclical drivers of the country’s growth beginning to turn. 

South Africa’s economy is primarily driven by consumer spending, and much of its growth in the past few years has come on the back of more household expenditure. 

This was driven by low inflation and falling interest rates, which freed up disposable income to be spent on basic foodstuffs or durable goods.

With the conflict in the Middle East effectively ending any chance of significant interest rate cuts in 2026, household spending growth is likely to slow. This will translate into slower economic growth.

The CRA explained that higher inflation is coupled with South Africa’s reforms progressing at a snail’s pace, which limits fixed investment growth. 

“Now, with international market and investor sentiment ebbing, 2026 will show whether South Africa’s policy and legislative ‘reforms’ have done enough to shift fixed investment onto a higher track,” the CRA said. 

For sustained growth, this will have to be the case, as the country cannot depend on commodity prices and household spending alone.

In fast-growing economies, fixed investment as a share of GDP is between 25% and 30%. In some emerging market economies, it is even higher. 

For the past decade, South Africa’s fixed investment levels have been stuck between 13% and 15% as a share of GDP, resulting in lacklustre economic growth.