South Africa’s economy grew by a modest 0.5% in the first quarter of 2026, but weak investment, sluggish sectoral performance and the economic fallout from the Iran conflict have dimmed prospects for stronger growth in the months ahead. (Image: iStock) South Africa’s economy expanded a paltry 0.5% on a quarterly basis 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 read – released on Tuesday by Statistics South Africa (Stats SA) – was on the high side of economists’ projections.
And this was the sixth consecutive quarter of growth, albeit at a sluggish pace. This would normally have raised hopes that at an expansionary trajectory was finally in place to build on against the backdrop of confidence-inspiring credit ratings upgrades.
But those hopes have been blown off course by the Iran War, the closure of the Strait of Hormuz, and the unfolding impact this has all had on the domestic and global economies.
“The slightly stronger-than-expected Q1 GDP headline figure provides a marginally higher starting point for 2026, so we keep our 2026 GDP growth forecast unchanged at 1.1%,” said Jee-A van der Linde, Senior Economist at Oxford Economics Africa.
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Anticipated recovery ‘weaker than expected’
“That said, the contraction in fixed investment is disappointing, and the outlook has deteriorated since the conflict in the Middle East escalated, implying that 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 for two consecutive quarters.
The data also showed that nine out of 10 sectors grew during the quarter, lead by agriculture which sprouted 3.9%. But the eight other sectors that grew all expanded by less than 1.0%, while manufacturing output declined 0.8% – its second straight quarterly contraction.
Mining only posted growth of 0.7% despite favourable commodity prices, while the labour-intensive construction sector – also a measure of investment and confidence as investors often build stuff – only eked out growth of 0.2%.
And this three-month period largely dodged the bullet of the current Middle East conflict, which began on 28 February with the US and Israeli attacks on Iran.
The surge in fuel prices since the start of April, the spike in inflation which could take it to 5.0% or more from 3.1% in March, and the May interest rate hike will all undermine the economic outlook for the rest of the year. Global growth forecasts are also being shaved lower, and SA’s fragile economy is being sucked down that drain.
Slow rates of economic growth
The reasons for SA’s slow rates of economic growth are numerous. Just take your pick: rampant crime and corruption and the costs these incur, wretched service delivery and crumbling municipalities, policy inertia, chronic skills shortages which erode productivity, and many more.
Even with the likes of Eskom and Transnet seemingly back on track, there is a tough road between such epic failures and the restoration of investor and business confidence. Once the damage has been inflicted on such a scale, it takes a long time to undo the harm.
SA’s recent spate of credit ratings and outlook upgrades speak to that. The Fitch move last week was the first upgrade the agency had bestowed on SA in more than 20 years.
And Fitch agency pointedly noted that “low real GDP growth, high poverty and inequality” were major constraints. This latest GDP read is testimony to that enduring and sorry state of affairs. DM