Early warning signal for South Africa about the shock to come

South Africa’s unemployment rate rose in the first quarter of 2026, signalling an early warning of the emerging shock from the global energy crisis.

This crisis is expected to have a severe impact on South Africa’s labour market and economy, which has too few buffers to fully protect it.

To make matters worse, the green shoots seen in the local economy and early signs of economic recovery are now also in jeopardy due to negative global developments, such as the Middle East war.

This is according to North West University Business School economist Professor Raymond Parsons, who commented after the release of South Africa’s Q1 unemployment figures.

Statistics South Africa released the results of its Quarterly Labour Force Survey on Tuesday, 12 May, which revealed that the country’s unemployment rate had shot up to 32.7%.

This is a significant deterioration from the 31.4% recorded in the fourth quarter of 2025, with the number of unemployed South Africans rising to 8.1 million over the three months through March 2026.

Concerningly, Parsons warned that unemployment could continue to worsen the longer the Iran war persists.

“The longer the Middle East conflict persists, therefore, the greater the downside risks to growth and employment in the rest of 2026,” he warned.

“It is therefore clearly in South Africa’s economic interests to see an early end to the US-Iran war.”

He explained that the local economy has too few buffers to withstand a global economic shock on the scale of the Middle East war.

“The ‘green shoots’ and incipient economic recovery that were apparent in recent months in South Africa have been jeopardised by negative global developments,” he said.

The International Monetary Fund (IMF) also has little belief in South Africa’s ability to continue its economic trajectory at the pace it had before the war broke out.

The IMF recently slashed its 2026 growth projection for South Africa’s economy from 1.4% to 1%, below the 2025 growth rate.

What South Africa can do

Parsons identified the two biggest laggards in South Africa’s economy as an inadequate thrust in infrastructural activity and insufficient levels of fixed investments.

“Both could be more responsive to intensified economic action, which would help to keep the GDP growth rate in positive territory this year,” he said.

Parsons previously described fixed investment as the “kingpin” of sustained economic growth, and as something South Africa must improve.

In healthy, developed economies like the United States, and even some emerging markets, fixed investment typically accounts for around 25% of GDP. In South Africa, this figure has been stagnant at around 15%.

The government has committed to spending over R1 trillion on public infrastructure over the next three years, though experts have said private-sector funding will also be crucial to achieving the levels of fixed investment South Africa needs.

While there are many areas South Africa can improve on, Parsons said it is not all doom and gloom for the economy.

For example, he pointed out that household spending remains resilient, despite renewed pressure, and could have sufficient momentum to offset some external shocks.

“One of the key factors shaping levels of business and consumer confidence this year will nonetheless be how soon the South African Reserve Bank will be compelled to raise interest rates to counter rising cost-inflation in relation to its 3% inflation target,” he said.

The Reserve Bank’s Monetary Policy Committee will meet again on 28 May to decide the fate of South Africa’s interest rates.

The committee will need to decide whether second-round effects from the Middle East war are already emerging and warrant interest rate hikes, or whether it can afford a “wait-and-see” approach.

“The global reaction from other central banks, which like the SARB enjoy high credibility, is that they will not yet rush into interest rate hikes that may unnecessarily damage growth and employment,” he said. 

“These considerations will no doubt weigh with the SARB in arriving at its decision later this month.”