South Africa’s second-quarter economic growth figures are due on Tuesday, providing a fresh snapshot of an economy battling high unemployment, weak business confidence and the fallout from sharply higher fuel prices.
To look beyond any single number, IOL created its own Economic Health Index, weighting 10 key measures to produce an overall score out of 10, with growth and jobs carrying the greatest weight.
The index is based on IOL’s desktop research and publicly available data, without input from economists.
The index shows that a healthy trade position, a resilient rand and improved electricity supply are offset by weak growth, exceptionally high unemployment and subdued business conditions.
Growth: The headline number
Based on the index, gross domestic product – weighted at 20% – scored 4/10, based on Q1 data. As a measure of the value of goods and services produced in the country, GDP grew 0.5% from the previous three months, its sixth consecutive quarterly expansion.
Yet GDP is only one measure of the health of an economy, and the wider picture is considerably more complicated.
Investec economist Lara Hodes expects the second-quarter economy to have remained flat, with a chance of a mild contraction. “The war in the Middle East, which began at the end of February, has seen costs increase markedly as a result of the significant lift in the global oil price, weighing heavily on activity,” said Hodes.
Hodes anticipated that manufacturing and mining will have shrunk again; manufacturing by 1.6% in July and mining by 4%, with both having not aided economic growth for some time.
Mining production fell 2.7% quarter-on-quarter in the second quarter, manufacturing contracted 1.5% for its fourth consecutive quarterly decline, and electricity generation dropped 2.5%.
The labour market is among the clearest signs of weakness. South Africa’s official unemployment rate increased to 33.6% in the second quarter from 32.7% in the first, its highest level in four years.
A deeper view can be gleaned from figures that tell us whether South Africans are finding jobs, businesses are investing, households are spending, or the country is earning enough from the rest of the world. Right now, those indicators are telling very different stories.
Consumers: spending but cautious
At the same time, consumers are still spending – real retail sales, taking inflation into account, were up 1.6% year-on-year in June and 1.7% higher in the second quarter than a year earlier.
While employed South Africans are spending, they are becoming savvier about how. Consumers are increasingly buying fast-moving consumer goods based on whether they are on promotion, recent NielsenIQ data indicated.
South Africans spent R347.7 billion on FMCG products in the first half of 2026, with sales values increasing 5.5% and the number of units sold rising 7.7% compared with the same period last year.
“The theme of the first half of the year was a consumer who continued to become more cautious and cost-conscious,” said Zak Haeri, MD for NIQ South Africa.
Consumer confidence, meanwhile, paints a considerably weaker picture. The FNB/BER Consumer Confidence Index plunged from minus seven in the first quarter to a deeply negative minus 19 in the second as higher fuel costs hit household budgets.
As Investec chief economist Annabel Bishop previously put it, “the moves in inflation impact consumer purchases, as real incomes determine the ability to spend on items and/or incur debt.” She added that “the distorting effects of inflation give a false picture on the consumers’ purchasing power based on their disposable income.”
Inflation: some relief, fresh risk
There has since been some relief. Consumer inflation slowed more than expected to 4.3% in July from 5% in June, with food and non-alcoholic beverage inflation now below 1%, its lowest level in 16 years.
The recent increase in petrol by R1.34 a litre and wholesale diesel by as much as R3.15 a litre will, however, adversely affect the cost of living — now the top issue keeping South Africans awake at night, according to DebtBusters’ fifth annual Money Stress Tracker.
Before the increases, Bishop warned that increases in this region would push inflation higher. “While CPI is expected to have peaked, further sustained exacerbation in the Middle East war would unseat this,” she said.
Tensions in the region have escalated significantly in recent days. The US-Iran conflict intensified following the expiration of a 60-day negotiation deadline over the Strait of Hormuz, marked by intense aerial exchanges and rising regional tensions.
Trade and the rand: bright spots
Despite this, South Africa recorded a R20.1 billion trade surplus in July, while its current account was already in surplus in the first quarter – an indicator that exports are a positive contributor to South Africa’s economic health.
The rand has also proved surprisingly resilient. Citadel Global MD Bianca Botes said the currency was trading at around R15.98 to the dollar last week after strengthening about 2% over the previous month.
“On balance the rand is well placed near current levels, but it remains a volatile expression of global risk appetite,” Botes said.
Peter Little, fund manager at Anchor Capital, noted that the rand gained 2.6% in August, making it the second-best-performing major currency during the month, while the JSE’s ALSI gained 4.6%.
Business confidence: still subdued
Businesses are battling, with the RMB/BER Business Confidence Index slipping to 38 in the third quarter from 39, well below the neutral 50 and an indication that almost two-thirds of those surveyed are still dissatisfied with the current business environment.
Bishop said business confidence had been depressed since the global financial crisis, extended by the state capture years and low growth, averaging around 38 since mid-2008 when the COVID-19 lockdown period is excluded.
Confidence had improved from late 2024 into early 2026 as political and investor sentiment improved, inflation eased, and load shedding declined – but higher fuel costs were again damaging profitability. Investec has cut its 2026 GDP growth forecast to 1.3% from 1.5%, Bishop said.
Industrial view: Mixed
On a manufacturing level, the Absa Purchasing Managers’ Index (PMI) fell from 46.8 in July to 45.8 in August, its fourth consecutive decline and weakest reading this year. Despite this, Absa’s PMI measure of expected business conditions six months ahead jumped 5.4 points to 54.7, returning to expansionary territory.
The broader S&P Global private-sector PMI also remained above the 50-point dividing line between contraction and expansion, edging up to 50.5 in August from 50.3 in July.
Electricity is another area where conditions have materially improved without eliminating South Africa’s structural constraints. Eskom reported only four days of load shedding in its latest financial year, compared with 329 days two years earlier, although municipal debt and weaknesses in electricity networks remain significant problems.
While the numbers suggest South Africa’s economy is holding up, improvements are not yet translating into what matters most: stronger growth and more jobs.
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