Although economic indicators point to the resilience of the South African economy, the observed improvements have not yet translated into the desired boost in growth and job creation.
Data on South Africa's second-quarter economic growth is expected to be released on Tuesday. This data will provide a fresh look at an economy grappling with high unemployment, weak business confidence, and the fallout from sharp fuel price hikes.
For a deeper analysis, IOL has developed its own Economic Health Index, which considers ten key metrics to form an overall score out of ten. Growth and employment carry the greatest weight in this index. This index is based on IOL's proprietary research and publicly available data, without the involvement of economists.
According to this index, positive aspects such as a healthy trade balance, a stable rand, and improved power supply are being offset by sluggish growth, exceptionally high unemployment, and reduced business activity.
Growth: The Main Indicator
Based on this index, the Gross Domestic Product (GDP), weighted at 20%, received a rating of 4 out of 10, according to first-quarter data. As a measure of the volume of goods and services produced, GDP increased by 0.5% compared to the previous three months, marking the sixth consecutive quarterly expansion.
Nevertheless, GDP is only one indicator of the economy's health, and the overall picture is far more complex. Investec economist Lara Hodges predicts that the second quarter's economy remained stagnant, with the possibility of a moderate decline. Hodges noted that the war in the Middle East, which began in late February, led to significantly increased costs due to a substantial rise in global oil prices, heavily impacting activity.
Hodges also anticipated further contractions in the manufacturing and mining sectors: manufacturing production fell by 1.6% in July, and mining fell by 4%, with both sectors having failed to contribute to economic growth for a long time. Mineral production decreased by 2.7% compared to the previous quarter in the second quarter, manufacturing contracted by 1.5% for the fourth consecutive quarter, and electricity generation dropped by 2.5%.
The labor market is one of the most obvious signs of weakness. The official unemployment rate in South Africa rose to 33.6% in the second quarter from 32.7% in the first, reaching its highest level in four years. More detailed information can be obtained from data on whether South Africans are finding jobs, whether businesses are investing, whether households are spending, or whether the country is receiving enough foreign income. Currently, these indicators tell completely different stories, according to IOL's internal economic index.
Consumers: Spending, but Cautiously
In parallel, consumers continue to spend money: real retail sales adjusted for inflation grew by 1.6% year-on-year in June and by 1.7% in the second quarter compared to the previous year. Although employed South Africans are spending, they are becoming more cautious about how they do so. According to recent NielsenIQ data, consumers are increasingly purchasing fast-moving consumer goods based on the availability of discounts.
South Africans spent R347.7 billion on FMCG goods in the first half of 2026, with sales volume increasing by 5.5% and units sold by 7.7% compared to the same period last year. Zak Khairi, CEO of NIQ South Africa, noted: 'The theme of the first half of the year was the consumer, who continued to become more cautious and price-sensitive.'
Meanwhile, the FNB/BER consumer confidence index paints a significantly weaker picture. The index sharply dropped from minus seven in the first quarter to deeply negative minus 19 in the second quarter because the rise in fuel prices hit household budgets. As Investec chief economist Annabel Bishop previously noted: 'Changes in inflation affect consumer purchases because real incomes determine the ability to spend on goods and/or take on debt.'
She added that 'the distorting effects of inflation give a false impression of consumer purchasing power based on their disposable income.'
Inflation: Some Relief, New Risk
There has been some easing since then. Consumer price inflation slowed more than expected, standing at 4.3% in July compared to 5% in June, and food and non-alcoholic beverage inflation is now below 1%, the lowest figure in 16 years. However, the recent increase in petrol prices by R1.34 per liter and wholesale diesel by as much as R3.15 per liter will negatively impact the cost of living—which, according to DebtBusters' fifth annual money stress tracker, is the main problem keeping South Africans awake.
Before the price hike, Bishop warned that rising prices in the region would push inflation up. She stated: 'Although CPI is expected to peak, a further sustained escalation of the Middle East war could disprove this.'
Tensions in the region have intensified in recent days. The conflict between the US and Iran escalated after the expiration of the 60-day talks on the Strait of Hormuz, accompanied by intense air skirmishes and rising regional tension.
Trade and Rand: Bright Spots
Despite this, South Africa recorded a trade surplus of R20.1 billion in July, and its current account was already in surplus in the first quarter—indicating that exports are a positive factor for the health of the South African economy. The rand has also proven surprisingly resilient. Bianca Bothes, CEO of Citadel Global, reported that the currency traded around R15.98 per dollar last week, strengthening by approximately 2% compared to the previous month.
Bothes emphasized: 'Overall, the rand is in a good position at the current level, but it remains a volatile reflection of global risk appetite.'
Peter Little, fund manager at Anchor Capital, noted that the rand rose by 2.6% in August, becoming the second best-performing major currency for the month, while the JSE's ALSI rose by 4.6%.
Business Confidence: Still Reserved
Businesses are facing difficulties: the RMB/BER business confidence index fell to 38 in the third quarter from 39, significantly below the neutral level of 50, indicating that nearly two-thirds of respondents remain dissatisfied with the current business climate. Bishop noted that business confidence has been suppressed since the global financial crisis, exacerbated by years of state capture and low growth, averaging around 38 since mid-2008, excluding the COVID-19 lockdown period. Confidence improved from late 2024 to early 2026 due to improved political sentiment and investor mood, lower inflation, and reduced power outages, but higher fuel costs have once again damaged profitability. Bishop reported that Investec has revised its 2026 GDP growth forecast from 1.5% to 1.3%.
Industrial Overview: Mixed
At the manufacturing level, the Absa Purchasing Managers' Index (PMI) fell from 46.8 in July to 45.8 in August, marking the fourth consecutive decline and the weakest figure of the year. Despite this, the Absa indicator reflecting expected business conditions in six months jumped by 5.4 points to 54.7, returning to the expansionary zone. The broader private sector PMI from S&P Global also remained above the 50-point dividing line between contraction and expansion, reaching 50.5 in August compared to 50.3 in July.
Electricity is another area where conditions have substantially improved, though structural limitations in South Africa remain. Eskom reported that in its latest financial year, there were only four days of power outages compared to 329 days two years ago, although municipal debt and grid issues remain serious concerns. Thus, while the figures suggest the South African economy is holding up, the improvements have not yet translated into the most important aspects: stronger growth and more jobs.