South Africa's Growth Slows to 0.5% as Fixed Investment Falls

South Africa has now recorded six consecutive quarters of economic growth, but the momentum is fraying. PwC South Africa’s mid-year economic review finds that real GDP expanded by just 0.5% in the first quarter, tracking close to the South African Reserve Bank’s full-year forecast of approximately 1.2%. That number, modest on its own, masks a deteriorating set of underlying conditions.

Fixed investment fell in the first quarter despite earlier recovery signals. Businesses are pulling back. Higher borrowing costs and persistent uncertainty are prompting companies to reassess expansion plans at precisely the moment when the operating environment demands forward commitment. The manufacturing Purchasing Managers’ Index sits only marginally above neutral, a signal that near-term output prospects remain weak.

The external environment is now the primary driver of South Africa’s economic trajectory. Oil prices have risen on the back of ongoing Middle East tensions, weakening the rand and pushing input costs higher across the economy. Inflation reached 4% in April, driven largely by transport and energy costs. The South African Reserve Bank responded by raising its policy rate to 7% in May, and rates are now expected to stay elevated for an extended period, closing off near-term relief for borrowers and businesses alike.

PwC South Africa chief economist Lullu Krugel put the stakes plainly: “The outlook for the second half of the year will depend on whether pressures persist, particularly those linked to global developments, as well as on the cost of capital and currency volatility.” The firm’s lead economist Dirk Mostert added that businesses must prepare for a prolonged period of elevated costs and interest rates as external shocks continue to reshape the operating landscape.

Sector performance is uneven. Mining has outperformed, supported by strong gold and platinum prices that have shored up export earnings. Consumer-facing sectors, including retail, wholesale and motor trade, posted solid gains earlier in the year, but that resilience is now being tested as fuel costs and borrowing rates erode household purchasing power. Financial services faces a more complex position: higher interest rates support margins but simultaneously dampen credit demand and raise risks to asset quality. Manufacturing remains fragile, with only modest output growth and continued pressure from rising input costs.

Construction and infrastructure represent a clearer area of potential upside. Government capital expenditure is expected to support activity in non-residential building and infrastructure projects, offering one of the more concrete near-term levers available to sustain economic activity.

Meanwhile, elevated commodity prices, particularly for gold and platinum, continue to provide important support. How durable that advantage proves will be critical to sustaining growth momentum through the remainder of the year. The path of oil prices, rand movements and consumer resilience as disposable incomes come under greater pressure will all shape what comes next.

PwC South Africa CEO Anastacia Tshesane acknowledged the longer-term case for the country, pointing to the depth of its financial system, the scale of its market and the resilience of its private sector. Unlocking that potential, she said, depends on rebuilding business confidence and sustaining investment traction in a more complex operating environment. Clear policy direction, continued public-private collaboration and a stable macroeconomic framework are the conditions she identified as essential.

Krugel’s framing of the immediate challenge is direct: “Businesses need to manage cost pressures and weaker demand conditions while still investing in future growth.” Whether they can hold that balance will depend on how quickly external pressures ease and whether domestic policy delivers enough stability to keep private sector engagement from retreating further. More detail on the review is available at https://www.engineeringnews.co.za/article/south-africas-economic-recovery-entering-uncertain-phase-amid-growing-pressure-2026-06-30.