While there is a silver lining on the horizon for SA’s economy, dark clouds still remain, warned economists on the outlook for 2026.
The said South Africa enters 2026 with a fragile but improving economic outlook, buoyed by easing inflation, lower interest rates, and improving confidence following key institutional and policy gains.
While economists agree that growth will remain modest, most see the year ahead as meaningfully better than 2024 and 2025, provided political stability holds and long-standing structural constraints are steadily addressed.
According to economist Ulrich Joubert, early indicators suggest 2026 could mark a turning point after several difficult years.
“The indications are that we should have a better year in 2026 than in 2025, and certainly better than in 2024,” he said, pointing to improving macroeconomic fundamentals and supportive global conditions.
Most forecasts place GDP growth for 2026 between 1.5% and 1.8%. While this represents a steady improvement from the estimated 0.5% recorded in 2024, economists caution that it remains far below the levels needed to address South Africa’s deep-seated unemployment and inequality challenges.
Prof Raymond Parsons of NWU Business School describes the outlook as one of “cautious optimism”, noting that the economy ended 2025 in a stronger position than a year earlier.
“A cumulative set of favourable factors promises better economic traction in 2026,” he said, citing four consecutive quarters of growth, easing inflation, and a firmer policy environment.
However, Parsons warned that these are necessary but not sufficient conditions for much higher growth. While the Government of National Unity (GNU) has set a target of at least 3.5% growth by 2030, current projections remain too modest when compared to other emerging markets.
Inflation, interest rates and household relief
One of the strongest pillars supporting the 2026 outlook is inflation. Headline inflation is expected to remain close to the South African Reserve Bank’s 3% target, supported by a stronger rand, subdued global energy prices and a relatively favourable agricultural outlook.
Joubert believes inflation could average around 3% in 2026, opening the door to further interest rate cuts. Lower fuel and energy costs, driven by an oversupplied global oil market, are expected to provide additional relief. Oil prices are forecast to remain around or below $US60 a barrel, helping to contain transport and food costs.
Sanisha Packirisamy, chief economist at Momentum Investments, expects inflation to average around 3.5% in 2026, still comfortably within the target band. While base effects and administered prices such as medical aid could push inflation slightly higher, she believes broader price pressures will remain contained.
Interest rates are therefore likely to decline further. Momentum expects the Reserve Bank to implement two additional 25-basis-point cuts during 2026, following earlier reductions. This would ease pressure on indebted households, though savers particularly pensioners dependent on interest income may feel the strain.
Politics, confidence and fiscal discipline
Political stability remains a central theme in the 2026 outlook. The continued functioning of the GNU is widely viewed as a positive, despite internal tensions and the uncertainty surrounding upcoming municipal elections.
Joubert notes that the elections could introduce political friction, particularly at local government level, where financial mismanagement remains widespread. “Municipalities are in dire straits, and this has a direct impact on growth, service delivery and the cost of doing business,” he said.
Fiscal discipline will come under close scrutiny in the February Budget. While recent credit rating improvements and South Africa’s removal from the FATF grey list have reduced borrowing costs and improved investor sentiment, economists warn that election-year spending pressures could test government resolve.
Dawie Roodt cautioned that recent improvements in fiscal metrics are not the result of strong growth, but rather aggressive tax collection. He raised concerns about the impact of SARS’ enforcement approach on taxpayers and small businesses, warning that fiscal sustainability ultimately depends on economic expansion, not administrative pressure.
Infrastructure, SOEs and structural constraints
Despite the improving macro backdrop, structural bottlenecks continue to cap growth potential. Eskom’s financial fragility, Transnet’s operational challenges, and deteriorating municipal infrastructure remain major constraints.
While private-sector participation in rail and energy is beginning to ease pressure, economists agree that progress will be gradual. Logistics inefficiencies continue to weigh on exports, while road infrastructure is under strain from heavy freight traffic displaced from rail.
Water security is another growing concern, particularly in drought-prone regions. Without improved municipal management and long-term investment in dams and bulk infrastructure, water constraints could increasingly limit growth.
Agriculture, trade and the rand
Agriculture is expected to be a relative bright spot in 2026, supported by generally favourable conditions, despite regional droughts and ongoing foot-and-mouth disease outbreaks. If managed effectively, a good agricultural year could help contain food inflation and support rural employment.
Trade conditions remain mixed. While US tariffs on certain agricultural exports pose challenges, Joubert views them largely as a once-off price adjustment. “Consumers tend to adjust to higher prices over time,” he said, adding that competitiveness will ultimately depend on quality and market positioning.
The stronger rand is a double-edged sword. While it reduces the cost of fuel and imports, it squeezes exporters’ margins. On balance, economists believe currency strength will support inflation control and consumer confidence, even as exporters face headwinds.
Investment: the missing ingredient
Despite improved confidence, private investment remains subdued. Companies are sitting on more than R1.8 trillion in cash reserves, hesitant to deploy capital amid lingering uncertainty.
Parsons argues that 2026 must deliver an “impulse” in reform implementation to unlock this investment. “Implementation should be the watchword,” he said, stressing the need for visible progress in energy, logistics, crime reduction and service delivery.
Without a decisive acceleration in reform, South Africa risks remaining stuck in a low-growth equilibrium better than the past, but far short of its potential.
As Joubert concluded, “We do see improvement, and that is encouraging. But whether 2026 becomes a true turning point will depend on discipline, delivery and confidence not forecasts alone.”
Weekend Argus
