Economic Update July 2026
- Dr Roelof Botha
- 6 hours ago
- 4 min read
The Downside
No sooner had the price of crude oil dropped to below $70 per barrel than Iran started to attack commercial ships via drones, threatening the fragile memorandum of understanding with the US and sending Brent crude back to $77 per barrel. Unless a lasting ceasefire is established, the chances for an easing of restrictive monetary policy will diminish, which will hurt the pockets of millions of indebted South Africans and curb the recovery of residential property market activity. The Governor of the Reserve Bank has already hinted at the possibility of a further interest rate increase, which will increase the cost of capital and of credit at a time when the economy had just started to grow at an annualised rate of more than one percent.
The latest Drive Motor Index (DMI), published by Drive.co.za, confirms a vibrant domestic motor industry, with the sales of new vehicles hitting new record highs – both in terms of numbers and values. However, closer scrutiny reveals an alarming negative trend for one of the twelve indicators included in the DMI, namely the export values for vehicles and components. This export section plays an indispensable role in generating foreign exchange on the country’s international trade account but declined by more than 20% during the first quarter of 2026. The declining trend has continued, which is one of the main reasons for the trade account slipping into deficit in May. Scholarly research has concluded that the South African motor manufacturing sector is under threat from high production costs, port inefficiencies, unreliable logistics, skills shortages, and ideological policies that are preventing smaller businesses to scale up. Unless these issues and the flood of cheap vehicle imports from China are addressed post haste, the sun may slowly be setting on a crucially important industry.
The Upside
Surge in mineral sales
The upward momentum of mineral sales values has gained traction during the start of 2026 to reach an all-time high in April (based on two-quarter average monthly values).
Although the prices of gold and platinum have declined since the flare-up of hostilities in the Middle East, the rising trend of sales values that kicked in during 2025 has provided the National Treasury with a welcome bonus in the form of higher company tax revenues, which has assisted fiscal stability via a third successive primary budget surplus. This achievement has played a part in the recent upgrades of the outlook for South Africa’s sovereign bonds by all three global credit rating agencies.
A stronger US dollar and profit-taking by investors that had bought gold at pre-2025 prices represent two reasons for the recent decline in the gold price. Another reason is related to the increase in US Treasury yields, which has increased the opportunity cost of holding non-yielding assets such as gold.
According to a recent annual survey by the World Gold Council, most global central banks are planning to increase the gold portion of their reserves during the next twelve months, whilst reducing their holdings of US Treasuries, which is good news for South Africa.
Welcome recovery of wholesale trade
Wholesale trade sales have started 2026 at a canter, bucking a declining trend that set in during the third quarter of 2023, with year-on-year growth of 9.3% in March (at current prices). The quarter-on-quarter growth of 13.7% was even more impressive and lifted sales to above the R300 billion level for the first time since November last year (which is traditionally a bumper month, due to preparations for festive season shopping by retailers).
Between March 2025 and March 2026, nine of the twelve types of wholesale traders recorded positive growth, with half of them hitting double digits. These results tie in with the findings of a recent purchasing managers’ index (PMI) for South Africa (by S&P Global), which found that new orders were increasing at a healthy rate.
It is especially encouraging that the wholesale trade groups for machinery & equipment and construction materials have kept pace with the overall expansion of wholesale trade during March, recording year-on-year growth rates of 13.5% and 8.8%, respectively. These two groups are inherently tied to capital formation and infrastructure development and will hopefully continue on a sustained growth path in the months ahead.
Household finances recover
The latest results of the Altron FinTech Household Resilience Index (AFHRI) were published in June, indicating progress with household financial stability. The seasonally adjusted index recorded its seventh successive increase, and was 14.7% higher at the end of last year than the base period of 2014.
The year-on-year reading in the fourth quarter of2025 rose by 2.2%, confirming some relief for households. This was driven mainly by lower interest rates, which has led to a year-on-year increase of 7.1% in the ratio of household income to debt costs and supported a 4.1% increase in household consumption expenditure.
On balance, Dr Roelof Botha deliberately emphasises positive news. It often highlights the resilience of the South African economy and the immense scope for new business opportunities.
