South Africa faces an economic slowdown with higher average inflation and mild interest rate hikes as conflict in the Middle East sustains elevated oil prices and disrupts shipping in the region.
This is the according to independent economist John Loos, who highlighted his outlook for the rest of this year in his latest Household Sector Economy report released on Tuesday.
Loos noted that initial hopes for only a mild, short-lived domestic inflation increase from the fuel price shock had faded.
“Early in the US/Israel-Iran conflict, the hope was that it would be short-lived, with shipping via the Strait of Hormuz normalising fairly swiftly.
“As the conflict moves into the third month with little sign of being resolved, and global oil stocks reportedly running down, so the likelihood of an economic growth slowdown, a more prolonged inflation surge, and interest rate hiking, becomes a more likely scenario for South Africa.”
Domestic fuel prices are to surge in May, with a 327 cents/litre increase in petrol and a 619 cents/litre increase in diesel. The year-on-year inflation rate for Gauteng petrol prices reaches an extreme 24.57% in May.
Loos expects this to drive CPI inflation from 3.1% year-on-year in March to 3.7% in April and around 4% in May, with second-round effects as producers pass on higher fuel costs.
“Brent crude oil price was sitting at around $114.00/barrel, which remains sharply higher than a level near to $60.00/barrel at the beginning of this year.”
Loos has revised his 2026 real GDP growth forecast downward to 0.8%, from 1.1% recorded in 2025. This reflects slower global growth – the IMF now forecasts 3.1% for 2026 versus 3.4% in 2025 – alongside domestic pressures. Average CPI inflation is projected at 3.8% for the year, with a near-term move above 4% through much of winter.
He anticipates slower global and local growth, higher prices eroding real disposable income, and potential interest rate hikes by the SARB to defend its 3% inflation target. Loos says the bank may implement a 25 basis point interest rate hike in the near term.
Real inflation-adjusted household consumption expenditure growth is forecast to slow from 3.6% in 2025 to 1.7% in 2026.
In a more ‘risk-averse’ household sector, Loos highlights several likely trends, including slowing demand for luxury/non-essential goods and ‘postponable’ purchases.
“This refers to typically low-frequency purchases that can be postponed, for example the ageing car replacement in many instances, home maintenance, household furniture and appliances, and technology.”
Loos adds that growth in real consumption expenditure on durable goods is likely to slow the most significantly while there will be a reduction in credit-dependent purchases, which are often interest rate-sensitive.
The restaurants and hotels segment is also expected to experience a significant slowdown due to its non-essential nature and direct exposure to higher fuel costs.
On the property market, existing home transactions are expected to decline with higher interest rates, while first-time buyers delay purchases. Residential building activity may slow once more.
