The good ship South African economy, upon which we all depend for our welfare and safety and on which we all, local and foreign-born, serve, had picked up something of a tailwind. That is, until the oil price shock and the accompanying recent increase in short-term interest rates threatened its forward momentum.
By the first quarter of 2026, the economy was almost 2% bigger than in the same quarter a year earlier. Not exactly exhilarating progress but a distinct improvement on what had come before. Though a caveat should be registered. The pickup in the first quarter of 2026 was accompanied by an unusually large surplus of exports over imports — equivalent to 5.5% of GDP — of Covid-like proportions and for similar reasons: a sharp decline in imports rather than a strong pickup in exports. Including the net income paid out offshore, the current account surplus and the excess of savings over capex were also unusually large — about 2.3% of GDP in the first quarter. It was -0.5% in 2025.
That means South Africans exported a significant proportion of their scarce savings rather than funding capex at home in the first quarter, thereby sacrificing a source of additional incomes over time should such capital be productively employed. Which it has not all been — but could be — when the extra sails are set in partnership with the private sector.
South Africa, given its low incomes and low savings rate — just 13% of GDP in 2025 — should be drawing on the global pool of savings to fund faster growth. But without the extra demand to strain capacity to supply, the case for adding to the capital stock remains weak. Demand leads supply as much as supply provides incomes and spending power.
Yet there have been some very helpful developments on the financial conditions front. After many years in the doldrums, before and again after Covid-19, the supply of money and bank credit had begun to gather significant momentum. In the 12 months to April the supply of money grew by 9%, and the supply of credit by the banks to the private sector grew at a similar rate.
That momentum had not slowed down by April, and when adjusted for the consumer price index, the real growth in these financial aggregates that will encourage spending was an impressive 5% a year. Enough financial thrust to sustain faster growth, which had been so lacking until last year and this one.
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There have been helpful readings from the currency and bond markets, both before and since the oil price shock. The rand is little changed from its exchange value of early 2026. It has recovered from oil shock weakness and is largely unchanged against the dollar and other major and emerging market currencies over the past 18 months. That rand strength makes the path to persistently lower inflation possible. And the oil price in rand is well off its highs.
Most encouraging is that long-term interest rates have moved higher across much of the developed world. South African yields have not increased in line, and thus the spread between yields on South African government bonds denominated in US dollars and US Treasury yields has narrowed markedly. South African debt is now trading at or very close to investment grade. That lower risk premium and the consequently lower cost of capital should encourage more capex. The cost of capital hurdle for investors to leap over is a lower one.
And so what comes next? Is there a further tailwind to be caught? It will take a reversal of short-term interest rates to get the economy back on its previous course. And for lower interest rates the Reserve Bank will need less inflation and less expected inflation. A still lower oil price will be very helpful and is surely not unlikely. Yet less inflation will also require further rand stability.
Important for the rand on a day-to-day basis will be the price of gold and platinum group metals. The dollar will matter for those prices as will interest rates in the developed world. The political argument for gold reserves rather than dollars will have been strengthened rather than weakened by the war in the Middle East, but gold and platinum prices have been highly elevated to the advantage of South African exports and tax revenues.
All on board the South African ship must hope for strength in precious metals and iron ore and coal prices in dollars, over which we have no control — but which we could do much to help increase their production and transport more profitable supplies to market. And encourage mining capex.
There is a realistic expectation of rand stability and hence lower inflation in South Africa. And some hope that the Reserve Bank will not unduly delay reversing the direction of interest rates. It should find every reason to get back in line as the oil price declines, should the rand hold up and the inflation rate reverse from its temporary highs. And if so, the economy can get back on course.
• Kantor is head of the research institute at Investec Wealth & Investment. He writes in his personal capacity.
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