Six consecutive quarters of economic growth sounds like a success story. The reality, according to PwC’s latest mid-year economic update, is considerably more complicated.
South Africa’s Reserve Bank and PwC both project GDP growth of approximately 1.2 percent for 2026, following a 0.5 percent expansion in the first quarter. The Reserve Bank, acting on inflation that climbed to 4 percent after reaching lower levels the prior year, raised interest rates to 7 percent in May. That decision, while consistent with the Bank’s price-stability mandate, is now adding to the cost pressures already bearing down on households and businesses.
Additional reference context is available at https://iol.co.za/business/economy/2026-07-03-south-africas-fragile-economic-growth-at-risk–and-households-are-feeling-the-squeeze/.
The external environment is doing much of the damage. Rising geopolitical tensions in the Middle East have pushed global oil prices higher, inflating South Africa’s fuel import bill and weakening the rand. Transport and energy costs have risen in turn, cascading through supply chains and household budgets alike. Dirk Mostert, lead economist and sustainability associate director at PwC South Africa, was direct about the shift: “The external environment is now a key driver of South Africa’s economic trajectory,” with higher fuel prices, a weaker rand and persistent global uncertainty placing pressure on costs and margins across sectors.
Lullu Krugel, chief economist and Africa sustainability leader at PwC South Africa, framed the overall picture this way: “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.”
Consumer data makes the fragility concrete. The FNB/BER Consumer Confidence Index fell from minus 7 in the first quarter to minus 19 in the second, its weakest reading since early 2025. The Bureau for Economic Research attributed the decline largely to elevated fuel costs and mounting pressure on disposable incomes. A Debt Rescue consumer survey, cited by Moonstone, found that nearly half of respondents were uncertain about their ability to absorb another interest rate increase, while more than three-quarters expected borrowing costs to rise further before year-end. More than half identified food, electricity and household essentials as the first items they would cut if financial pressure intensified.
The strain is sharpest at the lower end of the income scale. The Pietermaritzburg Economic Justice and Dignity Group’s Household Affordability Index documented that low-income households are increasingly forced to cover transport and electricity costs before purchasing food, leaving less for nutritious groceries as living costs climb. That pattern, though most acute for the poorest households, reflects a squeeze extending across income levels.
Meanwhile, the pace of recovery itself is slowing. Finance, agriculture, trade and transport performed relatively well in the first quarter, but business confidence has weakened, investment has softened and manufacturing remains subdued. PwC identified the biggest shift in its economic outlook over the past six months as the cost implications of rising geopolitical tensions, a factor that sits well outside the reach of domestic policy.
PwC South Africa chief executive Anastacia Tshesane acknowledged the country’s long-term investment appeal, pointing to its financial markets and resilient private sector. She cautioned, though, that sustained investment would depend on rebuilding business confidence through policy certainty, public-private collaboration and a stable macroeconomic environment. The challenge for policymakers is not simply sustaining growth momentum, but doing so while managing immediate pressures on household finances and business operations that show little sign of easing. Whether the Reserve Bank’s rate settings and broader fiscal policy can thread that needle before consumer confidence deteriorates further is the question 2026’s second half will begin to answer.