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- Real GDP growth likely softened from 0.4% qoq in Q4 2025 to about 0.2% in Q1 2026. High-frequency data suggest that services drove growth, supported by robust activity in domestic trade and finance. Elsewhere, performances were mixed. Off the tailwinds of last year's favourable rains, agriculture probably started the year off in positive territory. Mining output strengthened while manufacturing and electricity remained under pressure.
- We forecast moderately faster growth in agriculture. Expected harvests of field crops and horticultural products remained strong. On the downside, the livestock industry (more than 40% of agricultural Gross Value Added) remained under pressure from foot-and-mouth disease and the outbreak of African swine fever.
- Mining recovered, with PGMs and gold contributing the most. Manufacturing production weakened further as five of the ten manufacturing divisions reported contractions. Although the grid remained stable, with no load-shedding, electricity gas and water likely contracted, reflecting a 0.8% qoq drop in electricity production and a deepening water crisis, with many municipalities experiencing frequent water interruptions. Construction probably weakened further, given a sharp drop in building activity and weak sentiment amongst hardware retailers, building material manufacturers, and residential builders.
- Services probably remained the primary driver of growth in Q1, underpinned by finance, real estate and business services, which benefited from easier financial conditions. Domestic trade activity also remained positive, although the momentum likely softened, as weakness in accommodation and parts of retail trade partly contained the boost from growth in wholesale and vehicle sales. Transport activity improved as both passenger and freight volumes increased. We also anticipate positive contributions from general government and personal services.
- We still expect economic growth to improve slightly from 1.1% in 2025 to 1.2% in 2026, mainly driven by consumer demand, which should continue to benefit from earlier interest rate cuts. The war in Iran, however, poses significant downside risks. The conflict has already contributed to higher fuel prices, which have placed renewed upward pressure on domestic inflation, prompting the SARB to raise interest rates, with further tightening remaining a possibility. This threatens to remove an important source of support for household spending and investment, leaving the risks to the growth outlook firmly skewed to the downside. Over the next three years, we forecast an average growth rate of around 1.7%.