South Africa’s Q1‑2026 Economic Outlook: Modest Growth Amid Rising Costs
According to the latest forecasts from Nedbank and First National Bank (FNB), South Africa’s gross domestic product (GDP) is expected to have expanded by only 0.2 % quarter‑on‑quarter in the first three months of 2026. This marks a slowdown from the 0.4 % growth
Services Sector Remains the Primary Engine
Economists at Nedbank point to the services sector as the main driver of Q1 growth, with financial, real estate, and business services benefiting from relatively easier financing conditions. Domestic trading activity stayed positive, although momentum weakened as weakness in accommodation and sharing‑retail partially offset gains from wholesale and vehicle sales.
Transportation also contributed positively, with both passenger and freight volumes rising. Nedbank’s note adds that public‑sector and personal services are expected to provide further uplift.
Manufacturing Continues to Weigh on GDP
Factory output, which accounts for roughly 13‑15 % of the economy, fell 1 % in Q1 2026 compared with the same period in 2025, despite a modest 0.9 % rebound in March. FNB attributes the drag to lingering inefficiencies, high electricity tariffs, and surging fuel prices stemming from the Middle East war.
The bank forecasts only modest quarterly growth for the volatile agriculture sector, driven by increased crop production, while noting that the foot‑and‑mouth disease outbreak may have curtailed livestock output.
Mining and Manufacturing Face Structural Headwinds
Investec economist Lara Hodes highlights that both mining and manufacturing remain far below pre‑COVID‑19 levels. She explains:
“Both industries remain highly exposed to structural inefficiencies. While electricity supplies may have improved, tariffs stay exceptionally high. Adding to these cost structures is the explosion in fuel prices resulting from the war in the Middle East.”
Hodes notes some offsetting factors: commodity prices for platinum group metals (PGMs) and gold remain strong, and external demand for chromium and magnesium is robust. However, she judges the likelihood of a positive turnaround in manufacturing to be low.
Early Signs of a Manufacturing Rebound in April
A separate Stats SA release scheduled for Thursday is expected to show that the March recovery in manufacturing continued into April, albeit muted. The Absa Purchasing Managers’ Index (PMI) rebounded in April, but analysts caution that the improvement may be driven by temporary factors such as frontloaded demand and precautionary inventory building.
On the same day, Stats SA will publish mining production figures, which are anticipated to show a slight increase in April.
Balance of Payments and Current Account Trends
The South African Reserve Bank (SARB) will release its June Financial Stability Report on Wednesday, followed by the balance of payments report for the period ending March on Thursday. The current account, which records the net flow of income, goods, services, and unilateral transfers, posted a surplus of 0.6 % of GDP in Q4 2025, compared with a deficit of 0.9 % of GDP in Q3 2025, supported by a positive trade balance.
Nedbank projects that the current account surplus likely eased to about 0.4 % of GDP in Q1 2026, reflecting a weaker trade surplus and a larger non‑trade deficit as income and services outflows grew faster than receipts.
What Lies Ahead?
While the services sector offers a buffer, the economy’s growth trajectory will hinge on how quickly structural constraints—particularly energy costs and fuel prices—can be alleviated. Continued monitoring of Stats SA data, SARB stability assessments, and commodity market movements will be essential for businesses, policymakers, and investors seeking to gauge South Africa’s short‑term economic direction.
