South Africa’s growth holds steady, but momentum slows as global pressures rise: PwC mid-year economic update

– South Africa’s economy remains on a recovery path in 2026 but rising global pressures and cost dynamics are slowing momentum and reshaping the outlook for the months ahead.

PwC’s latest mid-year economic update shows that while domestic conditions have improved compared to recent years, growth will remain modest. Real GDP is expected to track close to the South African Reserve Bank’s forecast of around 1.2% for 2026, reflecting a more stable but constrained economic environment.

Recovery continues, but strain is emerging

The economy has delivered six consecutive quarters of growth, with GDP expanding by 0.5% in the first quarter of 2026. Household spending and exports have supported this recovery, while sectors such as finance, agriculture, trade and transport have contributed positively.

However, momentum is beginning to ease. Business confidence has declined sharply, and forward-looking indicators such as the manufacturing Purchasing Managers’ Index remain only marginally above neutral. Investment has also weakened, pointing to growing caution among businesses.

“South Africa’s economic recovery is holding, but it is becoming increasingly uneven and fragile. While domestic conditions have improved, the economy is now facing renewed pressure from rising costs and global uncertainty. The challenge for businesses is to navigate this environment while maintaining resilience and positioning for long-term growth,” says Lullu Krugel, Chief Economist and Africa Sustainability Leader, PwC South Africa.

Global pressures drive a shift in the outlook

The most significant change over the past six months has come from external developments. Ongoing tensions in the Middle East have pushed up oil and fuel prices, weakening the rand and increasing input costs across the economy.

As a net oil importer, South Africa is experiencing this primarily as a cost-push shock. This has fed through to inflation, which has risen from a low base in 2025 to reach 4.0% in April 2026, driven largely by higher transport and energy costs.

In response, the monetary policy environment has shifted. The Reserve Bank raised the policy rate to 7.00% in May, indicating a more cautious stance. Interest rates are now expected to remain higher for longer, limiting the scope for near-term relief.

“The external environment is now a key driver of South Africa’s economic trajectory. Higher fuel prices, a weaker rand, and persistent global uncertainty are placing pressure on costs and margins. This is slowing the pace of recovery and reinforcing the need for businesses to plan for a more prolonged period of elevated costs and interest rates,” says Dirk Mostert, Lead Economist, Sustainability Associate Director, PwC South Africa.

Sector performance reflects resilience and divergence

Sector performance in the first half of 2026 highlights a mix of resilience and growing pressure.

Mining has been the clear outperformer, supported by strong gold and platinum group metal prices, with mineral sales rising significantly. This has provided an important buffer for export earnings and helped offset broader economic pressures.

Consumer-facing sectors have also shown strength, with retail, wholesale and motor trade activity posting solid gains earlier in the year. However, this resilience is now being tested as higher fuel costs and borrowing rates begin to erode household purchasing power.

Financial services, a key contributor to growth, is entering a more complex phase. While higher interest rates support margins, they also dampen credit demand and raise risks to asset quality. Manufacturing remains fragile, with only modest output growth and continued pressure from rising input costs.

Construction and infrastructure offer one of the clearest areas of potential upside. The government’s focus on capital expenditure is expected to support activity, particularly in non-residential building and infrastructure projects.

Investment and confidence remain critical

A notable concern is the recent decline in fixed investment, which fell in the first quarter despite earlier signs of recovery. This suggests that businesses are becoming more cautious in response to higher borrowing costs and ongoing uncertainty.

The outlook for the second half of the year will depend on whether these pressures persist, particularly those linked to global developments, the cost of capital and currency volatility.

“South Africa continues to offer promising long-term opportunities, supported by the depth of its financial system, the scale of its market, and the resilience of its private sector. However, unlocking this potential will depend on rebuilding business confidence and sustaining investment traction in a more complex operating environment. Clear policy direction, continued public-private collaboration, and a stable macroeconomic framework will be important to support investment decisions and drive inclusive growth,” says Anastacia Tshesane, Chief Executive Officer, PwC South Africa.

What to watch in the months ahead

A  number of factors will shape the economic trajectory through the remainder of 2026. These include the path of oil prices, movements in the rand, and the resilience of consumers as rising costs begin to weigh more heavily on disposable income.

At the same time, elevated commodity prices, particularly for gold and platinum, continue to provide important support to the economy. The durability of this advantage will be a key factor in sustaining growth.

Navigating a slower, more complex recovery

As the recovery enters a more uncertain phase, businesses will need to adapt to a higher-cost, lower-momentum environment. Managing pricing pressures, protecting margins, and maintaining operational resilience will be critical.

“This next phase of the recovery will require careful balancing. Businesses need to manage cost pressures and weaker demand conditions while still investing in future growth. Those that remain agile and forward-looking will be better positioned to navigate what is likely to be a slower and more complex economic cycle,” Krugel adds.

The full report can be found here