South Africa’s economy started to turn for the better at the start of the year, but that momentum is already fading, with fuel prices expected to bring significant pain.
South Africa’s economic activity surged in March, with the Pay Inc economic index climbing 0.9% month on month to a record 104.7—4.6% stronger than a year ago.
However, speaking in an interview with Kaya Biz, economist Elize Kruger said this positive picture may be short-lived.
Following the R3 and R7 per litre hikes in April, “May could bring [more] historic fuel price shocks, threatening South Africa’s fragile recovery,” she said.
According to Kruger, the strong first-quarter performance was driven by favourable domestic conditions.
“It seems like the tailwinds that have been pushing the economy forward since 2025 have had a positive impact still in quarter one,” she said.
She added that the country had seen some improvement in business confidence and real salary increases, and noted that the extra purchasing power had an impact on economic activity.
Kruger also pointed to structural shifts in how South Africans transact. While cash is still used by a larger share of the population, its dominance is abating.
At the same time, digital innovation is helping expand access, with fintech solutions providing opportunities for people to become more digital rather than relying on cash.
Despite these positives, Kruger warned that external shocks—particularly the conflict in the Middle East—have significantly altered the outlook.
“This is a negative development. I really started the year optimistic, and now this war has completely disrupted that view,” she said.
“The extent to which we have seen fuel prices already been hiked, and some more hikes in the pipeline, will be extremely negative from all aspects.”
She explained that, for households, a bigger chunk of income is now going towards fuel and transport costs.
South Africa is in for long-term pain
Compounding that pressure will be the fact that businesses cannot absorb the level of increases, and companies will have to pass them through to their clients.
“I think we’re going to see a second wave of price increases. Inflation is no longer going to be so promising this year,” Kruger said.
She expects average headline CPI to rise to around 4.2% for this year, with the risk of even higher short-term spikes.
This raises the prospect of tighter monetary policy. “It will really depend very much on how long the war lasts,” she explained.
However, she added that the South African Reserve Bank will be focused on second-round effects, which include wage pressures and rising operating costs.
“There’s a chance that we will see a reaction on interest rates as a result of this war.” Kruger stressed the scale of the storm facing the economy.
She said it is a significant economic shock, and estimated that fuel prices could rise cumulatively by “about R7.20 per litre” for petrol and “almost R14 per litre” for diesel over a three-month period.
“There’s no way anybody can absorb this increase and not give it through to the end user.” She warned that the result is a renewed squeeze on households and businesses.
“This effectively is just going to extend our cost of living crisis in South Africa,” Kruger said, adding that if interest rates rise in response, it will just add to that cost.
While a resolution to the conflict could ease some pressure, Kruger cautioned that the damage may linger.
Even in a more optimistic scenario, “it’s not going to be easy to completely reverse what we already have seen,” she said. “From that point of view, we are in for a bit more longer-term pain.”
