South Africa’s economy remains on a recovery path, but rising global pressures and cost dynamics are slowing momentum and reshaping the outlook for the months ahead, says professional services firm PwC South Africa in its 'South Africa Economic Outlook – Mid-2026 review'.

South Africa’s economic recovery is holding, but it is becoming increasingly uneven and fragile. While domestic conditions have improved, the economy is now facing renewed pressure from rising costs and global uncertainty, says PwC South Africa chief economist and Africa sustainability leader Lullu Krugel.

Growth will remain modest. Real GDP is expected to track close to the South African Reserve Bank’s (SARB’s) forecast of about 1.2% this year, which reflects a more stable but constrained economic environment.

The economy has delivered six consecutive quarters of growth, with GDP having expanded by 0.5% in the first quarter of this year.

However, momentum is beginning to ease. Business confidence has declined sharply and forward-looking indicators such as the manufacturing Purchasing Managers’ Index remain only marginally above neutral, she says.

The decline in fixed investment is a concern, falling in the first quarter despite earlier signs of recovery. This suggests that businesses are becoming more cautious in response to higher borrowing costs and ongoing uncertainty.

“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,” Krugel states.

The external environment is now a key driver of South Africa’s economic trajectory. Higher fuel prices, a weaker rand and persistent global uncertainty are placing pressure on costs and margins, adds PwC South Africa lead economist and sustainability associate director Dirk Mostert.

This is slowing the pace of recovery and reinforcing the need for businesses to plan for a more prolonged period of elevated costs and interest rates, he notes.

The most significant change over the past six months has come from external developments. Ongoing tensions in the Middle East have pushed up oil and fuel prices, weakening the rand and increasing input costs across the economy.

Inflation reached 4% in April, driven largely by higher transport and energy costs. In response, the SARB raised the policy rate to 7% in May, which indicates a more cautious stance.

Interest rates are now expected to remain higher for longer, which limits the scope for near-term relief, he says.

Further, several factors will shape the economic trajectory through the remainder of this year, including the path of oil prices, movements in the rand and the resilience of consumers as rising costs begin to weigh more heavily on disposable income.

Simultaneously, elevated commodity prices, particularly for gold and platinum, continue to provide important support to the economy.

The durability of this advantage will be a key factor in sustaining growth.

However, South Africa continues to offer promising long-term opportunities, supported by the depth of its financial system, the scale of its market and the resilience of its private sector, says PwC South Africa CEO Anastacia Tshesane.

Unlocking this potential will depend 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 will be important to support investment decisions and drive inclusive growth, she says.

Sector performance in South Africa in the first half of this year highlights a mix of resilience and growing pressure.

Mining outperformed other sectors, supported by strong gold and platinum group metal prices, with mineral sales rising significantly. This has provided an important buffer for export earnings and helped offset broader economic pressures.

Further, consumer-facing sectors have also shown strength, with retail, wholesale and motor trade activity posting solid gains earlier in the year.

However, this resilience is now being tested as higher fuel costs and borrowing rates begin to erode household purchasing power.

Financial services, which is a key contributor to growth, is entering a more complex phase. While higher interest rates support margins, they also dampen credit demand and raise risks to asset quality.

Additionally, manufacturing remains fragile, with only modest output growth and continued pressure from rising input costs.

Construction and infrastructure offer one of the clearest areas of potential upside. The government’s focus on capital expenditure is expected to support activity, particularly in non-residential building and infrastructure projects, PwC says in its mid-year review.

As the recovery enters a more uncertain phase, businesses will need to adapt to a higher-cost, lower-momentum environment.

“This next phase of the recovery will require careful balancing. Businesses need to manage cost pressures and weaker demand conditions while still investing in future growth,” Krugel says.