By: Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano
The recent military conflict in the Middle East has rattled global markets. While oil prices were initially upheld by an elevated risk premium, recent events have shifted the market focus toward physical supply disruptions. The disruption to the Strait of Hormuz, through which around 20% of the global oil supply from the Middle East transits, alongside risks to oil-related infrastructure, increases the likelihood of sticky freight costs and material supply disruptions. The risk also extends to natural gas and fertiliser supply, amplifying cost pressures. While we continue to monitor the situation, we would be remiss if we didn't consider the transmission of these developments to the macroeconomic outlook.
Our longer-term outlook assumes that the globe will be susceptible to persistent geopolitical recalibration. As political fracturing increasingly translates to economic fragmentation, this is likely to sustain the occurrence of shorter and more volatile economic cycles. Therefore, compared with the decade preceding the pandemic, this implies a higher frequency of supply-side and confidence shocks, complicating macroeconomic stability. For many countries who are net-importers of petroleum products, we may see these events compounding stagflationary risk - alongside pre-existing trade barriers.
In South Africa (SA), higher import costs are the more immediate concern. Should oil prices remain elevated for a protracted period, headline inflation would likely exceed our baseline. This would initially show up in transport costs before potentially spreading to other costs. Based on previous episodes, a sustained $10 shock to oil prices relative to our baseline is consistent with an upside risk of around 0.7-percentage points (ppts) to our inflation outlook over a year, of which 0.5ppts would materialise from a direct impact and 0.2ppts through second-round effects. The impact this time will depend on what happens to the rand, which may still benefit from higher precious metal prices and SA's lower risk premium. A significant impact on pump prices may also prompt government intervention (as they did through fuel levy compression in 2022, but fiscal space is limited) while also limiting second-round effects if consumers reduce discretionary spending. Fortunately, the summer crop planting season is complete, with bumper global stocks of maize containing food prices. However, higher fuel costs during the harvest as well as the winter crop planting season later in the year remain exposed since Qatar and Saudi Arabia are two of South Africa's largest fertiliser suppliers.
A more persistent inflation shock would likely slow the pace of monetary policy easing. In such a context, financial conditions would no longer be as conducive and could dampen the speed of economic growth - leaving us with a less optimistic outlook.
A similar transmission is expected across the Broader African region, particularly in the Common Monetary Area (CMA) countries such as Eswatini and Lesotho, albeit with important country-specific nuances. In Botswana and Namibia, pre-existing structural and liquidity issues will likely constrain the monetary policy response, but fiscal pressures to support the economy and vulnerable households may mount. In Mozambique, financial conditions could worsen, heightening the urgent need for reforms and liquidity injections from multilateral institutions. Zambia's ongoing reform agenda could cushion the impact on the kwacha, but imminent national elections make price spikes a political headwind. Finally, financial conditions in Nigeria and Ghana should be somewhat buffered by higher oil and gold prices.
Ultimately, it is the structural impact of the conflict on oil-related infrastructure and logistics, rather than a risk-driven price-premium, that would shift the supply-demand fundamentals in the market. Apart from this, history tells us that strong price corrections could emerge, and the impact on the macroeconomic outlook could be limited.
Week in review
The FNB/BER Building Confidence Index edged down marginally to 42 points in 1Q26, from 43 in the previous quarter, largely reflecting sharp declines in sentiment among building material manufacturers and hardware retailers. Encouragingly, activity and profitability improved across much of the sector, indicating that the recovery in building conditions is continuing, albeit at a constrained pace. Excluding manufacturers and hardware retailers, confidence in the core building sector rose to its best level since 2023, supported by stronger work volumes. The non-residential building sector provided the strongest uplift to confidence, with sentiment reaching its hi
Real Gross Domestic Product (GDP)expanded by 0.4% q/q (seasonally adjusted) in 4Q25, following a downwardly revised 0.3% q/q in 3Q25 (previously 0.5%). The outcome exceeded both the Reuters consensus and our forecast of 0.3%. On an annual basis, growth moderated to 0.8% y/y, down from 2.1% y/y in 3Q25, largely reflecting a sharp reversal in agricultural growth to -12.8% from a 62.9% surge in 3Q25 (previously 49.9%).
The current account rebounded to a surplus of R50.2 billion in 4Q25, from a deficit of R72.0 billion in 3Q25, recording the first surplus since the third quarter of 2023. As a percentage of GDP, the current account also switched to a surplus of 0.6% in 4Q25 versus -0.9% previously. On an annual basis, the current account deficit narrowed to R35.2 billion (0.5% of GDP) in 2025. The improvement was driven by a widened trade surplus, rising to R282.2 billion in 4Q25 from R169.0 billion in 3Q25. This reflected higher values of merchandise and net gold exports alongside a decline in merchandise imports. Exports of goods and services rose by R51.1 billion, supported by stronger prices, while imports fell by R54.4 billion as import prices declined. In line with this, South Africa's terms of trade improved in the fourth quarter.
Mining production(not seasonally adjusted) expanded by 4.6% y/y in January, up from 2.8% in December. Seasonally-adjusted mining output rebounded by 2.9% m/m, following a 1.6% contraction in December. The largest positive contributors were Platinum Group Metals (PGMs), chromium ore, and manganese ore, while iron ore was the largest detractor. Overall, mining output declined by 3.1% in the three months ending in January compared to the previous three months.
Manufacturing output(not seasonally adjusted) declined by 0.7% y/y in January, following a 1.5% decrease in December. However, seasonally-adjusted manufacturing production rose by 1.5% m/m, after declining by 1.3% in December. The largest detractors were wood and wood products; paper, publishing and printing; basic iron and steel; non-ferrous metal products and metal products and machinery. The largest positive contributors were petroleum, chemical products, rubber and plastic products. As a result, manufacturing output declined by 1.7% in the three months ending in January compared to the previous three months.
Week ahead
On Monday, the BER inflation expectations survey results for 1Q26 will be available. Inflation expectations fell sharply and across all groups in 4Q25, reaching record-low levels for 2026 and the medium term. The decline followed the announcement of a lower 3% inflation target, reinforcing disinflation credibility, while wage and growth expectations remained broadly unchanged.
On Wednesday, data on consumer inflation for February will be available. Consumer inflation was recorded at 3.5% y/y in January from 3.6% in December. Monthly pressure was 0.2%, mainly driven by core and food pressures which were mitigated by lower fuel prices. Core inflation was 0.3% m/m, and 3.4% y/y. Average fuel prices fell by 3.4% m/m and 3.7% y/y. Food and non-alcoholic beverages inflation remained unchanged at 4.4% y/y but posted monthly pressure of 0.4%. We expect inflation to slow to 3.2% y/y even as health insurance drives monthly pressure of 0.6%.
On Thursday, we will get current account data for 4Q25. In the previous quarter, South Africa's current account deficit narrowed to R57.0 billion from R72.2 billion in 2Q25. As a share of GDP, the deficit improved to -0.7% from -1.0% previously. This outcome reflected a smaller surplus on trade in goods and services. Export volumes fell, while import growth was largely driven by higher prices. Consistent with this, South Africa's terms of trade deteriorated as import prices rose faster than export prices.
Also on Wednesday, retail sales data for January will be available. Retail sales growth decelerated in December, coming in at 2.6% y/y, down from 3.6% in November. On a month-on-month basis, volume sales declined by 0.4%, partly reversing the 0.6% gains recorded previously.
