South Africa’s economy: gradual stabilization amid persistent structural constraints
• Bonds: The South African bond market strengthened considerably through 2025 and into early 2026, marking a clear shift from the volatility and risk discounting that characterized the prior years, with several positive domestic developments underpinning the improvement. However, rising geopolitical tensions in the Middle East, particularly the conflict involving Iran, present a notable headwind.
• South African growth: South Africa’s economy maintained its growth momentum, registering its fourth consecutive quarterly expansion during the third quarter of 2025. Growth was largely broad-based during the third quarter of 2025, with nine out of the ten main economic sectors increasing during the quarter. The recent growth trajectory has been supported by a more stable electricity supply and the ongoing improvements in the logistics sector. At the same time, household demand has strengthened notably in response to lower inflation and interest rates.
• Gold: The average US dollar price of gold rose sharply through 2025. Despite these record-high international prices, South Africa’s gold sector benefited unevenly: while higher prices provided important revenue support, declining domestic gold production and lower export volumes limited the pass-through to export values. Nonetheless, the substantial increase in gold prices, alongside firm platinum group metals prices, provided meaningful support to export receipts, contributing to improved trade flows and helping to underpin the rand’s appreciation during the year, even as supply-side challenges in the mining sector persisted.
• Automobile exports: South Africa experienced a sharp 28% decline in automotive exports to the United States between January and September 2025, reflecting a marked weakening in demand from one of its key export destinations. However, South Africa’s automotive sector demonstrated a degree of resilience through successful market diversification. Despite the contraction in shipments to the US, total automobile exports increased by 25% over the same period, supported by stronger demand from other African markets, the European Union and the United Kingdom. This reorientation underscores the sector’s growing ability to redirect exports toward alternative destinations, partially cushioning the impact of weaker US demand and highlighting the importance of continued export diversification in an increasingly uncertain global trade environment.
• Employment: Labor market conditions improved further in the fourth quarter of 2025. Employment increased by 44,000, while the unemployment rate also declined.
• Inflation: South African inflation has gradually firmed from a low of 2.8% in October 2025, reflecting a clear upward drift through the second half of 2025 after bottoming at 2.7% in March. Although price pressures have edged higher, inflation remains well contained within the 3% ±1 percentage point target range (2–4%) adopted in November 2025. However, a notable upside risk to the inflation outlook has recently arisen—the outbreak of conflict involving the United States, Israel and Iran, which has already pushed up international oil prices, with consequent knock-on effects on domestic inflation and transport costs. Elevated global oil prices should feed directly into higher fuel prices in South Africa and could lift headline inflation above its current trajectory.
• Interest rates: At its first meeting for 2026, the South African Reserve Bank's Monetary Policy Committee (MPC) decided to keep the benchmark interest rate unchanged. The decision was consistent with the Reserve Bank’s price stability mandate and reflects prevailing inflation dynamics. The decision to keep rates unchanged is consistent with the Bank’s communicated commitment to anchor inflation at 3% over the medium term and to entrench the credibility of the new target. Despite these recent dynamics, upside risks have increased due to escalating tensions in the Middle East. We expect the South African Reserve Bank to leave the benchmark interest rate unchanged at the upcoming Monetary Policy Committee meeting later this month.
• The fiscus: Budget 2026 was presented in a more stable political and fiscal environment than the previous year, signaling a more measured and growth-oriented approach to fiscal consolidation. The Budget maintains a primary surplus, narrows the deficit and projects government debt to stabilize just below 80% of GDP before gradually declining. Importantly, consolidation relies less on new tax increases and more on improved revenue administration and stronger economic growth.
• Trade: The trade relationship between the US and South Africa remains in a state of high-stakes volatility. While the invalidation of the 30% “reciprocal” tariff provides a momentary reprieve, the replacement surcharges continue to compress margins in price-sensitive sectors such as the automotive industry and fresh fruit exports. The main concern is now the increased uncertainty, which effectively serves as a tax, rather than just the tariffs’ costs. Consequently, South Africa is actively diversifying its trade relationships to reduce reliance on the United States following the imposition of steep tariffs.
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