South Africa’s economy pulled off a 0.5% expansion in the first quarter of 2026, marking a sixth consecutive quarter of growth.
On the face of it the performance looks resilient, beating both market consensus and the South African Reserve Bank’s more conservative estimates. The headline number might offer some hope, but a closer look tells a different story.
The primary sector was the star of Q1, driven mostly by agriculture, which expanded 3.9% on the back of a prosperous summer and added 0.1 of a percentage point to the country’s overall growth.
The Bureau for Economic Research’s Lisette IJssel de Schepper and Shannon Bold note: “The agriculture sector, which has been notoriously volatile in recent years, booked the biggest quarterly expansion on the back of higher economic activity in field crops and horticulture products.”
However, relying on the farm sector to boost growth is risky, because its success is tied to weather patterns rather than purely structural economic improvements. Momentum economist Sanisha Packirisamy points out that a tougher environment is around the corner. “This includes higher fertiliser and diesel costs and poorer weather conditions as we head into the next planting season in October.”
While agriculture provided a boost in Q1, the broader services sector formed the foundation that kept the economy in positive territory.
Packirisamy highlights this as part of a long-standing trend. “Historically, the tertiary sector of the economy has buoyed economic growth, while growth in sectors in the secondary and primary industries has disappointed,” she says.
However, she cautions that this historical resilience should not be taken for granted because it relies on the local consumer. She says while the tertiary sector is holding up the economy, households are buckling under higher transport costs and elevated interest rates, diverting spending away from discretionary items and threatening service-driven growth.
Schoeman aptly refers to the Q1 performance as the ‘calm before the Middle East’
IJssel de Schepper and Bold detail how much heavy lifting this part of the economy is doing. While agriculture grew at a faster pace, they note that “the biggest boost came from the finance sector”. Finance is the largest sector, accounting for 21% of the economy. During Q1, it expanded by a solid 1.4%, single-handedly adding 0.2 percentage points to the overall GDP print.
Elsewhere, South Africa’s factory floors are struggling. Manufacturing contracted 0.8%, making it the only sector to actively drag on overall economic growth.
Gina Schoeman, an MD at Citi and head of economics for Central & Eastern Europe, Middle East and Africa, warns that this is no longer a temporary dip but a deeply entrenched slump. “The secondary sectors have seen falling momentum ... for six consecutive quarters.”
Schoeman says when the local manufacturing base isn’t growing, the consequences ripple directly into the demand side of the economy. This industrial stagnation was glaringly evident in a huge R22.4bn annualised drawdown in inventories during the quarter. Rather than producing new capital and consumer goods, manufacturers are simply depleting existing stockpiles.
Perhaps the most concerning data point for long-term prospects is the 1.1% retreat in gross fixed capital formation. For an economy that desperately needs to build infrastructure and expand capacity, shrinking investment is a red flag.
IJssel de Schepper and Bold note that while the headline GDP outcome was encouraging, the underlying composition of that growth was problematic. “The quarterly decline came fully from the private sector, with private sector capex almost fully erasing the gains booked in 2025.”
While the headline GDP stayed in the black, domestic expenditure contracted 0.3%. Ultimately, the 0.5% growth was largely rescued by a big drop in imports, a technical boost that masks severe demand-side strain.
Schoeman warns against celebrating this deceptive trade balance. “We must remember that falling imports are often linked to softer household spending and falling investment,” she says. “We’re not importing as many household consumption goods, and we’re not importing as many capital goods necessary for fixed investment.”
Standard Bank economist Shireen Darmalingam warns of a harsh reality check in Q2. She expects a noticeable slowdown in GDP growth in the coming months, driven primarily by the protracted Middle East conflict and the resulting surge in domestic fuel costs.
“Business confidence has already deteriorated in the second quarter,” Darmalingam says, adding that she expects mounting pressure on consumers who were already under strain prior to the Iran war. With fuel prices surging and interest rates remaining elevated, the modest 0.5% growth of Q1 may be difficult to replicate in the quarters to come.
Schoeman aptly refers to the Q1 performance as the “calm before the Middle East”. The current quarter will inevitably reflect the inflationary shock of those April fuel price hikes, limiting the Bank’s room to manoeuvre.
Looking at the full-year picture, Packirisamy forecasts modest 1.2% growth for 2026, while the BER and Citi’s baseline predictions remain unchanged despite the slight Q1 upside. Darmalingam notes that Standard Bank expects a moderate improvement in growth to about 2% over the medium term.
