Statistics SA attributed the contraction mainly to weaker mining and manufacturing output.
Rand Swiss Senior Analyst and Investment Specialist Viv Govender said SA had entered the second quarter from an already weak position. “If you extrapolate that after an entire year, it’s going to come to about 1.5% or 1.6% as a growth rate, which is far below what we need,” Govender said.
Mining had supported previous economic gains and reduced the need for some tax increases considered by the government. Factory production also declined by about 1.8%.
Govender linked part of the slowdown to higher oil prices caused by conflict in the Middle East. Petrol prices increased by more than $0.40 a litre, while diesel prices rose by almost $0.60 a litre. “People often underestimate the importance of diesel in a modern economy,” Govender said.
“Virtually every piece of commercial material you can think about, be it a bulldozer, tractor, ship or train, to a large extent, runs on diesel.”
Brent crude increased from about $78 a barrel at the beginning of August to more than $98 a barrel, representing a rise of more than 20%.
Govender said continued oil price pressure could prevent SA from reaching the SA Reserve Bank’s 1.4% growth forecast for 2026. “I’m very doubtful that we’ll come anywhere near that 1.4% or 1.5% target,” Govender said.
The Strait of Hormuz remains an important indicator for SA’s economic outlook because disruption to shipping could increase global energy prices further.
Govender said strategic petroleum reserve releases by major economies had moderated current oil prices. Some estimates placed the underlying price above $150 a barrel without those releases.
Diplomatic efforts involving Qatar and China could support attempts to restore shipping through the Strait of Hormuz. However, Govender said major differences among Iran, the United States and Israel reduced prospects for a quick settlement.
For SA, continued increases in oil prices could raise transport and production costs, weaken business activity and deepen the economic slowdown. “The number one source of danger for us in SA at the moment remains the fact that oil prices could rise,” Govender said.
–ChannelAfrica–
