By: Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano
Our most recent macroeconomic forecasts incorporate the 4Q25 GDP results as well as initial responses to the ongoing conflict. Given the persistent instability in the Middle East, the outlook remains particularly uncertain, and we are therefore closely monitoring financial market developments, including global oil prices and the domestic currency.
In March, we had pencilled in average monthly oil prices of around $100 per barrel, which has already transpired, with prices then expected to remain below that level over the forecast horizon. This assumption reflects the likelihood of continued geopolitical tensions, even as military risks gradually ease and the Strait of Hormuz effectively reopens, allowing roughly 20% of global daily oil supply to pass through.
The most immediate domestic impact has, of course, been on market sentiment and fuel prices, reflecting significant under- recoveries amid higher global oil prices and a weaker rand. Indeed, the Basic Fuel Price increased by R5.81 per litre at the start of April. However, the full pass through to pump prices was partly cushioned by government's decision to reduce fuel levies by almost R3 per litre, while still allowing the 2026 Budget's proposed increases in the general fuel levy (R0.09/litre), carbon fuel levy (R0.05/ litre) and Road Accident Fund levy (R0.07/litre) to take effect.
Inflation higher and moderately persistent
Our modelling also suggests that the combined impact of these developments will be higher inflation and slightly weaker real GDP growth. We could see headline inflation spike to around 4%, pulling away from the new 3% target, and averaging 3.6% in 2026, up from 3.2% in 2025. Should Middle East tensions intensify further and push oil prices above our current forecast assumptions, inflation could rise faster than currently forecast.
Encouragingly, oil prices have recently moved back below $100 per barrel from above $115 per barrel at the end of March (though still very volatile), following the two-week ceasefire between the United States (US)-Israel alliance and Iran. However, it will likely require a more durable de-escalation or lasting peace arrangement, as well as lessened logistical vulnerability, to meaningfully reduce the embedded geopolitical risk premium and allow oil prices to better reflect underlying market fundamentals.
Monetary policy implications
Prior to the escalation in the Middle East, we had expected the South African Reserve Bank (SARB) to lower the repo rate by a cumulative 50-basis points (bps) this year. However, those expectations have since been tempered by the inflationary implications of the conflict, and we now expect only one 25bps cut, likely delayed to the second half of the year. Despite these near-term challenges, we still expect the broader easing cycle to remain intact with the repo rate expected to drop towards 6.00% by the end of 2028.
Growth outlook softer near term, but reform still supportive
We now expect real GDP growth to average 1.3% in 2026 (down from our pre-war projection of 1.5%) and 1.5% in 2027 (previously 1.6%). This primarily reflects a modest drag on real household consumption spending, as higher prices erode purchasing power. That said, we still expect growth to gradually lift toward 2.0% by 2028/29, supported by the continued implementation of domestic structural reforms.
For now, near-term risks to the growth outlook remain skewed to the downside and will depend heavily on the extent to which ongoing Middle East tensions continue to weigh on sentiment and filter through to producer and consumer prices.
Week in review
South Africa's gross foreign exchange reservesdecreased to $77.8 billion in March, down from $81.1 billion in February. The decrease was largely driven by the lower US dollar gold price, valuation adjustments with regards to foreign exchange and asset price movements, as well as foreign exchange payments made on behalf of government. The forward position increased to $0.59 billion, from $0.57 previously.
Manufacturing output (not seasonally adjusted) declined by 2.8% y/y in February, from a -0.1% fall in January. On a seasonally-adjusted basis, manufacturing production declined by 2.2% m/m, after increasing by 1.9% in January. The largest negative contributors were food and beverages, wood and wood products; paper, publishing and printing; basic iron and steel; non-ferrous metal products and metal products and machinery. As a result, manufacturing output declined by 2.0% in the three months ending in February compared to the previous three months .
Week ahead
On Tuesday, the mining productiondata for February will be released. 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.
Weekly Round-Up: Economics from Broader Africa
Broader Africa Macro Forecast Round-Up
