Republic of South Africa

Economic growth picked up moderately in 2025, to 1.1%, favoured by improved electricity supplies, the recovery of private consumption and increased confidence following the formation of the National Unity Government in 2024. However, expansion remains modest, hampered by significant bottlenecks in logistics, transport and municipal infrastructure.

Activity remained somewhat buoyant at the start of 2026, although driven mainly by the contribution from the external sector, while weakness in consumption and investment shows that internal recovery remains fragile.

The IMF has revised its growth forecast downwards to 1.1% in 2026 and 1.3% in 2027, in light of the impact of the conflict in the Middle East and the deterioration in the external environment. Recovery will continue to be supported by structural reforms and the normalisation of some critical infrastructure, but it will not be enough to significantly reduce elevated structural unemployment, with an unemployment rate above 30%.

South Africa’s status as a net importer of oil means that the energy shock negatively affects activity through higher transport and production costs, the loss of household purchasing power and tighter monetary conditions. Added to this are weak global demand, volatile metal prices and increased trade protectionism.

The South African rand remains highly sensitive to the global risk appetite, dollar movements and commodity prices. In 2026, the conflict in the Middle East and energy volatility have caused depreciation episodes, although the credibility of the monetary framework, fiscal consolidation and improved perceptions of sovereign credit risk have limited more abrupt movements. Exchange rate flexibility acts as a mechanism for absorbing external shocks, but persistent depreciation would intensify the transmission of energy prices to inflation and could require further monetary tightening.

The risk outlook is tilted to the downside, with significant fiscal and external vulnerabilities, structural deficiencies and potential hotspots of social and political tension. The economy is particularly sensitive to an escalation of the conflict in the Middle East, the tightening of international financial conditions, the weakness of its main trading partners and falls in metal prices. A more persistent energy shock would simultaneously worsen growth, inflation, the external balance and the exchange rate.

Additionally, we identified the following unsystematic risks:

• The banking system remains resilient, well capitalised and with adequate levels of liquidity, although its growing exposure to public debt reinforces the link between banking and sovereign risks.
• The decrease in power outages and the improved financial situation of the state-owned electricity company have reduced energy restrictions, but bottlenecks remain in railways, ports, water and municipal infrastructure.
• Insufficient fiscal consolidation, lower-than-expected growth or a further increase in financing costs would impede public debt stabilisation and could divert resources allocated for investment and social protection.
• Unemployment, inequality and poverty sustain the latent risk of social unrest, especially if the recovery does not generate employment. At the same time, the heterogeneity of the National Unity Government may delay agreements on fiscal consolidation, state-owned enterprises and the opening of strategic sectors.
• The country is vulnerable to extreme climate events, particularly droughts and floods, which affect agriculture, water availability and infrastructure. A disorderly energy transition could also raise the cost of electricity and hinder decarbonisation goals.