The global economy last year endured extreme uncertainty due to geopolitical and trade frictions. This compelled large swings in global economic forecasts. However, the economic weakness, that was widely feared in such challenging and uncertain conditions, ultimately failed to show up.
As a result, the aggressive initial cuts to global growth forecasts were reversed almost entirely. Global growth slowed only marginally in 2025, compared to 2024, with a marginal further moderation pencilled in for 2026.
For South Africa, the fragile and uncertain global growth backdrop, however, was counteracted by an estimated double-digit spike in terms of trade (prices of exports relative to prices of imports). We estimate that South Africa was one of the emerging markets that benefited the most from spikes in some commodity prices.
The terms of trade may prove a defining determinant of The country’s economic performance in 2026.
Sharply higher export commodity prices will not only boost exports and economic growth, but it is the major reason for the rand exchange rate’s sharp appreciation over the past year, from nearly R20/$ at the weakest to now around R16.40/$.
A stronger rand should prove disinflationary, thereby assisting the Reserve Bank’s pursuit of its new, lower, 3% inflation target
A stronger rand should prove disinflationary, thereby assisting the Reserve Bank’s pursuit of its new, lower, 3% inflation target (with a one percentage point tolerance to either side).
While the ever-pragmatic central bank may remain cautious about the sustainability of lower inflation, therefore cutting interest rates only gradually, disinflationary rand appreciation may allow for interest rate relief slightly sooner, and perhaps marginally deeper, than was the case just a few months ago. Scope for such easing may also be underpinned by inflation expectations sliding last year, thereby bedding down lower wage and general price increases.
Lower interest rates create a key tailwind for consumers this year, especially as the 2025 impetus from strong growth in the government’s wage bill should not recur. Consumers should also benefit from the positive wealth effect of a stronger JSE.
Whether the favourable terms of trade adjustment can be sustained or is unwound will likely guide many aspects of the economic outlook in 2026. However, the momentum with structural reforms, particularly reforms implemented by the Treasury and the Presidency’s joint Operation Vulindlela reform programme, as well as a suite of policy interventions to accelerate infrastructure spending, will determine whether South Africa experiences merely a cyclical growth upswing or a more enduring improvement in trend growth.
Here, green shoots have emerged, including higher machinery imports and strong corporate credit growth, which bodes well for the long-awaited recovery in fixed investment. Encouragingly, business sentiment has improved, with the RMB/BER business confidence index rising to slightly above its long-term average in the fourth quarter of 2025. This is supported by visible improvements resulting from the reforms, such as no load-shedding and a marked improvement in rail and port operations.
Sentiment would also have been boosted by the relatively swift delisting from the Financial Action Task Force’s grey list, a sovereign credit rating upgrade by S&P and clearer indications of the government’s commitment to restoring fiscal sustainability.
Improved sentiment bodes well for private sector fixed investment recovering.
Our forecast economic growth improvement for 2026, to around 1.4%, from 1.2% in 2025, usually stems from this expected recovery in fixed investment.
The crux is that homegrown reforms have already improved the economic prognosis; ultimately, reforms will determine whether the growth trend improves sustainably.
But for now, South Africa is benefitting from a strong global terms-of-trade tailwind that could provide significant cyclical support.
Provided that none of the domestic and global risks — notably a flare-up in geopolitical or trade tensions or in domestic political and policy uncertainty — materialise, South Africa is poised for a strong 2026.
- Dr Elna Moolman is Standard Bank Group head of South Africa macroeconomic research
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