The South African economy faces a more challenging 2026 simply because of the unpredictability of US President Donald Trump’s actions.
Up to so far, however, Trump’s actions of trying to increase the price of crude oil by bombing Iran, abducting Venezuela’s President Nicolás Maduro, and the imposition of trade tariffs on nearly every country in the world, including islands populated by penguins, have failed.
What this is telling us is that markets are pricing risk complexity differently. Why are almost all commodities traded in US dollars?
This is not from the benevolence of the market but the deliberate introduction of petrodollars by the US to protect the value of the dollar.
The petrodollar became prevalent in the 1970s as America promised Saudi Arabia military protection in exchange for oil purchased from Saudi being settled in dollars, and in return, all the oil Saudi sold would be settled in dollars.
This “coerced” countries to build US dollar reserves, thus enhancing the value of the greenback.
However, markets are beginning to price that risk differently. Venezuela was selling oil to China but settling in Chinese yuan. At the same time, China is a founding member of Brics, which is moving away from the petrodollar regime.
Opec+ and non-Opec members have increased production of oil, thus flooding the market with the black gold and ultimately crude prices kept on
surprising on the downside.
On our calendar, three events could set the canvas upon which the country could draw its economic path for 2026.
The first, but less significant lately, is the ANC’s January 8 statement, which used to feed the State of the Nation Address (Sona), with the address feeding the national budget.
However, since the establishment of the government of national unity, there’s been a weaker link between ANC January 8 statement and its traditional link to Sona and ultimately the national budget presentation.
A favourable crude oil price is positive for the country, as it means materially lower fuel prices at the pumps. Moreover, transport costs could decrease, a feat that’ll confirm that general price levels in the country could be lower. The latter translates into lower inflation and is favourable for capital inflows, as capital flows into lower-inflation countries; otherwise, the price of money or capital tends to be high to attract global capital inflows. This is rand positive.
But more than anything else, sustained lower crude prices converge to ensure lower domestic prices and therefore lower borrowing costs. Lower inflation and lower interest rates translate into favourable disposable incomes across the value chain of expenditures.
Household consumption expenditure could be lifted. Considering it accounts for well over 66% of consumption GDP, this is favourable for GDP this year.
GDP growth over the last eight years ending 2024 averaged 0,65%. At the last official reading in 2024, GDP recorded a paltry 0.5% yearly average.
Considering a country with a 31.9% unemployment rate, the economy needs to grow at above 3%. So far, indications are that we began 2026 on a high: stronger currency dollar-rand at 16.35, crude oil prices at less than $62 per barrel, gold price at over $4 300 per fine ounce, lower producer inflation at circa 2.9% in November, CPI at favourable 3.5%, lower prime interest rate at 10.25%, a stable and stronger Transnet, and sustainable recovery in electricity supply (though there are some pockets of improvements in both Transnet and Eskom) and a positive trade balance.
These are all positive for growth. Remember, the price of gold was circa $300 in the early 2000s, and it closed 2025 at a historic high around $4 300 per fine ounce. (Again, markets are pricing in the Trump risk).
Growth could near 1% on average this year with a gradual increase in the medium term.
Similarly, rand strength could continue and lead to lower inflation, prompting monetary policy authorities to keep on lowering interest rates.
Our paltry growth rate could exert pressure on revenue collections and force fiscal authorities to tighten fiscal policy. But against an unemployment rate of above 30%, Treasury could be forced to loosen up fiscal austerity measures to accommodate scores of the unemployed. With artificial intelligence tearing into economies, fiscal austerity measures would have to be less tight to accommodate new recipients of social grants.
In summary, GDP growth could be positive, near 1% growth for 2026. Both measures of inflation, PPI and CPI, are likely to be lower as a result of a stronger currency and weaker and subdued crude oil prices.
In reality, interest rates across the curve could flatten or parallelly lowered, thus lowering the interest expenditure item in the national budget. This could release much wanted capital for other national priorities.
The year 2026 could be bumpy for SA, but with sufficient shock absorbers in the form of a stronger currency, positive trade balance, lower borrowing costs, lower crude oil prices, and a favourable national budget, we could end this year where we left off in 2025.
