Mining production fell 5.4% year on year in May 2026, according to Stats SA.
Image: Nicola Mawson | IOL
South Africa’s economy hit a speed bump in the second quarter of 2026 after entering the year with considerably stronger momentum.
The South African Reserve Bank’s composite leading business cycle indicator fell 1.6% quarter-on-quarter in the second quarter of the year, according to Investec chief economist Annabel Bishop.
“The decline followed a particularly strong first quarter, when the indicator reached its highest level since the post-COVID-19 lockdown recoveries, Bishop noted, with gross domestic product (GDP) coming in at 0.5% in the first quarter and data for the second quarter due on 8 September.
The slowdown is reflected across several parts of the economy. Statistics South Africa’s latest economic wrap shows mining production fell 5.4% year-on-year in May, dragged down particularly by iron ore, coal and platinum group metals.
Manufacturing production declined 4.3%, with seven of its 10 divisions recording contractions, while electricity generation was down 9%. Buildings completed, wholesale trade sales, restaurants, catering and fast food, and rail freight were also weaker than a year earlier.
Retail trade provided one of the brighter spots, growing 2.3% year-on-year in May, but Bishop said consumers came under significant pressure during the quarter as inflation accelerated sharply, reaching 5% in June as higher fuel prices filtered through the economy.
“The moves in inflation impact consumer purchases, as real incomes determine the ability to spend on items and/or incur debt,” Bishop said. “The distorting effects of inflation give a false picture on the consumers' purchasing power based on their disposable income,” she added.
PayInc data released this week pointed to pressure on household incomes and the labour market, with its Economic Index declining 0.4% quarter-on-quarter on a real, seasonally adjusted basis.
The average real net salary was R20,269 in July, 2.2% lower than a year earlier, according to the latest PayInc Net Salary Index, though real salaries did edge up 0.4% from June, helped by the slowdown in inflation. In nominal terms, the average net salary increased to R21,642 in July, 0.2% higher than June and 2.2% above its level a year earlier.
“South African households continue to navigate a challenging economic environment, making the recovery in purchasing power particularly important for consumer confidence and spending,” independent economist Elize Kruger said.
Bishop expects the pressure on households to show up when second-quarter GDP data is released.
There are, however, reasons not to interpret the second-quarter slowdown as the end of South Africa’s improving economic trajectory. Despite declining from the first quarter, the Reserve Bank’s leading indicator was still 3.4% higher year-on-year in the second quarter.
Inflation has also begun retreating, falling from 5% in June to 4.3% in July. Bishop expects inflation to remain around current levels, with any further fuel increases likely to be modest compared with those experienced during the second quarter. She expects the headline rate to return towards 3% by April.
PSG senior economist Johann Els is also upbeat about South Africa’s prospects beyond the immediate weakness. “South Africa’s growth outlook is gradually improving as structural reforms gain momentum.
Els added that “private sector participation in electricity has fundamentally changed the energy landscape. Logistics reforms are under way. Operation Vulindlela continues to remove important bottlenecks”.
There is also improved fiscal discipline, sustained primary budget surpluses and government debt appearing close to peaking as a share of GDP, said Els. “Ratings agencies have become increasingly constructive, and, over time, I believe South Africa can gradually return to investment-grade status,” he said.
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