South Africa’s economy shrank 0.2% in the second quarter, while higher inflation prompted another interest-rate increase in September.
JOHANNESBURG — South Africa’s economy faces pressure from weaker output and higher borrowing costs after a second-quarter contraction and the Reserve Bank’s September interest-rate increase.
Statistics South Africa reported on September 8 that gross domestic product declined 0.2% quarter on quarter in the three months to June. The contraction followed revised growth of 0.4% in the first quarter and ended six consecutive quarters of expansion.
Mining, trade and manufacturing weighed on production. Mining output fell 3%, with lower production of platinum group metals, manganese ore, gold and iron ore. On the expenditure side, rising imports and subdued investment constrained growth.
Inflation added another complication. Annual consumer price inflation increased to 4.4% in August, from 4.3% in July, although the consumer price index was unchanged month on month. Food and non-alcoholic beverage inflation edged higher, while annual fuel inflation eased.
On September 23, the South African Reserve Bank unanimously raised its policy rate by 25 basis points to 7.25%, effective September 25. It cited persistent supply shocks and the risk that elevated fuel costs would spread into broader inflation.
The bank projected 1.2% growth for 2026, anticipating a second-half recovery but identifying downside risks. It expected inflation to exceed 5% later this year and early next year before returning towards its 3% target near the end of 2027.
For households and businesses, the combination creates a difficult operating environment. Higher interest rates can increase repayments on variable-rate borrowing, while rising prices reduce purchasing power and raise operating costs. Weak demand can also make businesses more cautious about investment.
The contraction describes a quarterly decline in output; it does not mean the economy is forecast to shrink over the full year. Nor does one negative quarter establish a technical recession.
The immediate challenge is whether activity recovers while price pressures ease. A sustained improvement would give policymakers more room to support growth without compromising inflation control.
