By Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano & Ame Muller
The 2020s have been plagued by multiple shocks. The gradual lifting of the Covid-19 pandemic lockdowns resulted in a combination of supply- and demand-side shocks which dampened growth prospects at the start of the decade. Thereafter, a cyclical recovery was interrupted by renewed tensions between Russia and Ukraine in 2022 which ushered in tighter financial conditions. In 2024, monetary policy easing began but concerns over global trade conditions mounted following presidential elections in the United States (US). In line with this, 2025 was dominated by tariff escalation and economic fracturing. Nevertheless, financial conditions remained conducive, and global activity proved resilient. We now confront a new geopolitical crisis that has generated an energy price shock and threatens global prospects. Once again, the International Monetary Fund (IMF) has downgraded growth forecasts, as it did this time last year, but can growth prove more resilient than feared?
The military conflict in the Middle East has disrupted trade routes and accelerated energy and food prices, with emerging markets particularly vulnerable because of currency depreciation. As a result, humanitarian crises are mounting across the globe. While this shock comes after US tariff rates have been significantly lowered from last year, the future course of US trade policy remains uncertain and countries with concentrated export offerings could still consider current tariff levels as a cap on growth. Furthermore, pre-existing concerns around the impact of demographic challenges and climate change on social and economic stability are intact. Therefore, growth will not only need to be resilient in the near term but will likely continue to face persistent pressures over the longer term.
For now, the IMF has adjusted its macroeconomic outlook. The fund has raised its inflation expectations for the globe by 0.6-percentage points (ppts) and 0.3ppts in 2026 and 2027, to 4.4% and 3.7%, respectively. Global growth is expected to slow from 3.4% in 2025 to 3.1% in 2026, before ticking up to 3.2% in 2027. Importantly, expected growth in 2026 could have been upgraded to 3.4% had it not been for the war - highlighting that underlying dynamics were supportive before this shock. The fund's more adverse scenarios, where the conflict or its impact on supply is protracted, see a stronger deviation in inflation expectations away from targets; financial conditions tightening; and even slower growth. The less adverse of the scenarios sees global inflation as high as 5.4% and growth at 2.5% this year. The more adverse of the scenarios is consistent with more recessionary and persistent pressures, with inflation breaching 6% in 2027 and growth falling closer to 2%. Naturally, these effects are more pronounced for net-importers of energy as well as economies that entered 2026 on a weak footing.
Should the war prove short-lived or the supply crunch averted, global growth could well exceed expectations. Growth prospects could also be insulated by targeted fiscal and industrial policy intervention while productivity-enhancing innovations could continue to raise potential growth. However, the opposite is just as likely. We could see medium-term prospects scarred by the current war while we continue to confront domestic and cross-border conflicts as well as tighter financial conditions and inefficient capital allocation. Ultimately, policymakers must delicately balance the growing desire for self-sufficiency with the lingering potential of globalisation. In the interim, resilience may be paid for with painful reforms or policy buffers - South Africa is betting more on the former.
Week in review
Headline inflation ticked up to 3.1% y/y in March from 3.0% in February. Monthly pressure was 0.6%, mainly due to core inflation. Core inflation was 3.2%, up from 3.0% previously, with monthly pressure of 0.8%. Services inflation recorded 0.9% m/m, and 4.2% y/y, mainly driven by housing, education, restaurants and hotels, and there was already some pressure on public transport. Core goods inflation was 0.6% m/m and 1.0% y/y. Average fuel prices increased by 1.2% m/m and were 8.7% lower than in March last year. Food and non-alcoholic beverages (NAB) inflation slowed to 3.6% y/y from 3.7% y/y in February. There was no monthly pressure as higher vegetables and NAB costs were mitigated by meat deflation. Inflation should accelerate to 3.8% in April, mainly reflecting the fuel price shock.
Retail sales growth eased sharply to 1.6% y/y in February, down from 4.4% in January. Sales volumes declined by 1.0% m/m, reversing the 0.9% gain in the previous month. As a result, volume sales over the past three months are only 0.5% higher compared to the preceding three months. Importantly, this data largely predates the war in the Middle East, which has since heightened uncertainty and unsettled oil markets, developments that are likely to dampen sentiment and weigh on consumer activity going forward.
Week ahead
On Tuesday, the leading business cycle indicator for February will be published. In January, it rose by 0.4% m/m to 118.2 in January, which reflects 4.8% annual growth versus 4.3% previously. The monthly rise was due to an increase in five of the ten available components, which outweighed declines in the other five components. The largest positive contributors were an increase in South Africa's US-dollar denominated export commodity price index and an improvement in the RMB/BER Business Confidence Index. In contrast, the largest negative contributors were a decrease in the new passenger vehicles sales trend growth rate and a decrease in the volume of domestic orders received in the manufacturing sector.
On Thursday, data on Private Sector Credit Extension (PSCE) for March will be released. In February, PSCE growth accelerated to 10.5% y/y, up from 8.8% previously. Corporate credit led the surge once again, coming in at 15.9% y/y, driven mainly by credit card advances (30.6% y/y), while household credit growth rose to 4.2% y/y. Within households, general loans and advances rose to 3.5% y/y and mortgage growth edged up to 3.0% y/y.
On Thursday, producer inflation data for March will be released. In February, producer inflation slowed to 1.8% y/y, from 2.2% in January. There was no monthly pressure. The main contributors to annual PPI inflation were food products, beverages and tobacco as well as furniture and other manufacturing.
Also, on Thursday, the trade balance for March will be published. The trade balance recorded a surplus in February of R36.9 billion versus a significantly smaller surplus of R8.5 billion in January. The February outcome reflected an increase in exports by 8.8% m/m due to shipments of vehicles and transport equipment, machinery and electronics, as well as base metals. In contrast, imports fell by 10.7% due to purchases of vehicle and transport equipment, base metals, machinery and electronics, chemical products and original equipment components.
Weekly Round-Up: Economics from Broader Africa
