Six straight quarters of growth have come to an abrupt halt, leaving South Africa heading into the second half of the year with considerably less momentum than previously expected.
A 0.2% GDP contraction in the second quarter, after a downward revision to the first quarter, also makes President Cyril Ramaphosa’s 3% growth target seem more unrealistic than ever.
Lisette IJssel de Schepper and Shannon Bold of the Bureau for Economic Research (BER) point out that much of that revision came from agriculture, with its first-quarter growth slashed from 3.9% to only 1.2%. “This significantly reduces the apparent contribution from agriculture to the first-quarter expansion and makes the Q1 outcome somewhat less impressive than initially reported,” they say. “This matters for the full-year growth outlook.”
Worse, the second-quarter contraction can’t be dismissed simply as a temporary setback after a strong start to the year. “On its own, the weaker Q2 print would have been manageable,” says the BER. However, combined with the downward revision to the first quarter, it materially increases the downside risk to the BER’s already anaemic 1.3% growth forecast for 2026.
To reach 1.3%, GDP would have to grow by an average of 0.6% in the second half, a much faster pace than seen so far.
The second quarter contraction was unusually concentrated in just three of the economy’s 10 industries: trade (down 1.9%), manufacturing (1.8% slower) and mining (3% weaker). The other seven expanded.
According to the BER, GDP would have grown about 0.1% if mining and manufacturing were excluded. Those two sectors, it says, continue to act as an important brake on an economy in which activity elsewhere has generally proved more resilient.
‘Bifurcated economy'
Momentum group economist Sanisha Packirisamy says South Africa remains a “bifurcated economy”, with service-related industries lifting economic growth while primary and secondary industries disappoint.
This is nothing new. In fact, such has been South Africa’s deindustrialisation over the past decade that manufacturing activity in the second quarter was 7% below its level 18 years ago in 2008 — the year of the global financial crisis. Construction is 20% down from its 2008 number and 27% below its pre-pandemic level. Financial services, by contrast, has grown 52% from its 2008 level and is now 11% above its pre-Covid level.
On the plus side, household consumption held up, growing 0.4%, as did government spending. On the expenditure side, says Anchor Capital economist Lerato Ntuli, “net exports were the largest drag on growth, subtracting 1.1 percentage points from GDP. Imports surged by 4.9%, significantly outpacing export growth of just 0.9%, largely due to the sharp rise in the fuel import bill.”
The BER says: “Interestingly, this is almost the mirror image of Q1.” Domestic expenditure strengthened, but a sharp deterioration in net exports pulled headline GDP into contraction.
There’s little good news either in terms of investment, seen as crucial for economic expansion. Gross fixed capital formation fell 0.2%, its second consecutive quarterly decline, while the BER warns private investment remains well below pre-Covid levels.
Packirisamy argues that electricity and logistics reforms under Operation Vulindlela should eventually lift investment, productivity and export capacity, but acknowledges that “the growth dividend has not yet fully materialised”.
Still, Momentum is less pessimistic about what comes next. It has kept its 2026 growth forecast at 1.2% and expects an uptick to 1.6% next year. Packirisamy says the Middle East conflict and oil supply disruptions have “delayed rather than derailed the country’s growth trajectory”.
The cyanide cherry is that our weak growth may not necessarily save borrowers from another rate increase. “A contraction does not veto a hike on September 23,” says Ntuli, maintaining her call for a further 25 basis point increase by the Reserve Bank.
Ominously, the BER does not anticipate another contraction, but expects activity to “stabilise at a weak level”.
