The South African economy showed a contraction of 0.2% in the second quarter, reversing the trend of 0.4% growth recorded in the first three months of the year. These figures were published by Statistics South Africa (Stats SA) on Tuesday. This contraction was the first since the third quarter of 2024, when GDP had decreased by 0.3%.
During the quarter, three sectors experienced declines: mining shrank by 3%, industrial production fell by 1.8%, and trade, accommodation, and hospitality decreased by 1.9%.
Trade and manufacturing had the most negative impact on overall GDP, each reducing growth by 0.2 percentage points, while mining lowered the figure by 0.1 percentage point. Agriculture, which was expected to provide support, grew by 0.3%, and figures for electricity, gas, and water increased by 1%, while transport rose by 0.9%.
Regarding spending, consumer spending increased by 0.4%, but net exports reduced GDP by 1.1 percentage points because imports grew significantly faster than exports.
Economists' Forecasts
Before the publication, PSG senior economist Johan Els expected the economy to be either relatively stable or contract by a maximum of 0.2% quarterly. He characterized the high-frequency data available at the time as a 'mixed picture.'
Els noted that mining and manufacturing were very weak, but consumers remained relatively resilient. The second quarter was also the first full quarter reflecting the consequences of the oil shock and rising fuel prices, coupled with the interest rate hike in May adding further pressure.
Despite expecting some support from the record maize harvest in agriculture, he suggested that some of this benefit might be deferred to the third quarter. While forecasting slight or zero growth during the quarter, he stated that the result is unlikely to impede the expected annual improvement.
Expecting a figure around 0% or minus 0.2%, Els added: 'It is not as weak as previously feared, and it still allows the economy to remain on a growth trajectory of approximately 1.4–1.6% this year, compared to 1.1% in 2025. We will wait for more details before changing our forecasts.'
Signs of Improvement
More recent data indicates an improvement in economic activity after the second quarter. The PayInc Economic Activity Index rose by 0.3% in July, partially offsetting drops of 2% in May and 0.9% in June. At 102.7, the index was 0.9% higher than a year earlier.
Shegeran Naidu, Head of Stakeholder Engagement at PayInc, commented on the July figures, stating: 'Although the overall environment remains challenging, the latest PayInc Economic Activity Index shows that economic activity has regained some momentum over the month.'
Payment activity showed a more encouraging signal in July: transaction volume reached a record high, increasing by 13.5% compared to last year, and the cost of electronic payments also rose during the month.
Independent economist Elisa Kruger noted: 'July brought a long-awaited improvement, but one month does not yet signal a sustained turnaround.'
Need for Stability
It is emphasized that 'a more significant recovery will depend on greater stability, reduced price pressures, and improved confidence that encourages households to spend and businesses to invest and create jobs.'
The labor market also showed weakening in the second quarter: the official unemployment rate rose to a four-year high of 33.6% from 32.7% in the first quarter, according to the latest Stats South Africa data. The number of unemployed people increased by 345,000 compared to the previous quarter, reaching 8.5 million, while employment decreased by 16,000 to 16.7 million. The formal sector lost 41,000 jobs during this quarter.