South Africa's economy grew a modest 0.5% quarter-on-quarter in the first three months of this year, before the global fallout from the Iran conflict hit these shores like a missile – an ominous sign for the year ahead.
On the bright side, the report – released on Tuesday by Statistics South Africa (Stats SA) – was at the higher end of economists' expectations.
And it was the sixth consecutive quarter of growth, albeit at a slow pace. This would generally raise expectations that an expansionary trajectory would eventually take shape against the backdrop of confidence-inspiring credit rating upgrades.
But those hopes have been dashed by the Iran war, closure of the Strait of Hormuz and its impact on the domestic and global economies.
“The slightly stronger-than-expected Q1 GDP headline figure provides a slightly higher starting point for 2026, so we keep our 2026 GDP growth forecast unchanged at 1.1%,” said G-A van der Linde, senior economist at Oxford Economics Africa.
Anticipated recovery 'weaker than expected'
“That said, the contraction in fixed investment is disappointing, and the outlook has worsened since the conflict in the Middle East escalated, meaning the anticipated recovery in investment may be weaker than we previously expected.”
Indeed, gross fixed capital formation – a broad measure of investment – declined 1.1% after posting moderate gains in two consecutive quarters.
The data also showed that nine out of 10 sectors grew during the quarter, with agriculture contributing 3.9%. But the eight other sectors that grew grew by less than 1.0%, while manufacturing output declined 0.8% – its second consecutive quarterly contraction.
Mining recorded growth of only 0.7% despite favorable commodity prices, while the labour-intensive manufacturing sector – which is a measure of investment and confidence because investors often make goods – recorded growth of only 0.2%.
And this three-month period largely avoided the brunt of the ongoing Middle East conflict, which began with US and Israeli attacks on Iran on February 28.
Rising fuel prices since early April, a pick-up in inflation that could take it from 3.1% to 5.0% or higher in March, and an interest rate hike in May will weaken the economic outlook for the rest of the year. Global growth forecasts are also being downgraded, and SA's fragile economy is being flushed down that drain.
slow rate of economic growth
There are many reasons for SA's slow rate of economic growth. Just take your pick: rampant crime and corruption and the costs it entails, poor service delivery and crumbling municipalities, policy inertia, chronic skills shortages that reduce productivity, and much more.
Even as companies like Eskom and Transnet get back on track, there is a difficult path between such epic failures and the restoration of investor and business confidence. Once damage is done on such a large scale, it takes a long time to repair the damage.
SA's recent credit rating and outlook upgrades reflect this. Fitch's move last week was the first upgrade given to SA by the agency in more than 20 years.
And the Fitch agency clearly stated that “low real GDP growth, high poverty and inequality” were the major obstacles. This latest GDP report is evidence of that persistent and regrettable situation. DM