Economic Update May 2026
- Dr Roelof Botha
- 4 days ago
- 3 min read
Updated: 1 day ago
The Downside
During the last week of April and into the first week of May, the price of oil remained above $100 per barrel, providing ample evidence of the continued impasse between the US and Iran. Global energy prices remain hostage to very high levels due to the effective closure of the Strait of Hormuz, which has led to fears of higher inflation worldwide. Unless the world's second-busiest oil tanker route is reopened soon, the spike in global fuel prices may curb the more accommodative monetary policy stance that most central banks have followed since the end of 2024.
In the meantime, the potential benefits from increased maritime transport around the Cape of Good Hope cannot be realised, due to the inefficiency of Transnet's ports. The promises of greater private-sector participation in port operations and management have been limited to Pier 2 at the Durban Container Terminal, where efficiency has already improved.
At the end of March, both consumer and producer price inflation in South Africa remained at just above 3% and just above 2%, respectively, but higher fuel prices could unsettle these indices later in the year. Unfortunately, the producer price index (PPI) is also under threat due to South Africa's electricity utility's inability to contain its costs. In March, the year-on-year increase of the PPI for electricity and water shot up to 17.9%, compared to minus 2.9% for agriculture and 2.3% for the overall PPI. Much more needs to be done to rein in the inordinately steep rise of electricity and water costs.
The Upside
Hefty increase in trade surplus
Fortunately for South Africa, the abundance of precious metals and minerals has helped keep the balance of payments with the rest of the world in good shape, with the country's cumulative trade surplus for the first quarter of 2026 trebling from last year's figure of R28.5 billion to R77 billion.
The significance of the country's balance of payments stability is especially relevant to domestic price stability, as it supports the exchange rate, which, in turn, prevents an even greater increase in the price of imported fuel.
A feature of the international trade account during the first quarter of the year has been a change in the ranking of the top four export sectors, with agriculture and food overtaking vehicles and components as the third-largest generator of foreign exchange. Another feature is the further narrowing of the gap between the top two export sections, with precious metals challenging minerals for the gold medal.
Oil price - some light at the end of the tunnel
Amid the energy industry upheaval caused by the war in the Middle East, South Africa can take some comfort in several ameliorating circumstances. First and foremost, the availability of oil and fuel has not been seriously threatened. Ample supplies remain available from numerous sources, both within South Africa and abroad. Secondly, the National Treasury has extended the reduction in the general fuel levy for another month. For petrol, the reduction has been kept at R3 per litre, but for diesel, it has been changed to R3.93 per litre, reducing the levy to zero. Â
South Africa still has two operational crude oil refineries, namely Natref and Astron Energy, as well as Sasol's coal-to-liquids plant. Combined, these three facilities produce approximately 350,000 barrels of refined fuels per day. It is also encouraging to note that South Africa has become less reliant on imported oil and fuel, partly due to progress with the transition to renewable energy.Â
Other good news is the United Arab Emirates' (UAE) decision to exit the OPEC+ oil cartel. This move will allow the UAE to ramp up oil production by 1.5 million barrels per day. Furthermore, Venezuela's disastrous experiment with the nationalisation of key industries is slowly being reversed. The interim president has invited oil companies back, and the refurbishment of many oil rigs is already underway in a country that holds the largest oil reserves on Earth.
Gold benefits from a softer rand exchange rate
With the gold price remaining above $4,500 per fine ounce and the rand exchange rate taking a knock due to heightened geopolitical uncertainty, the average daily fixing price of gold has shot up by 14% since the end of last year, reaching R82,636 per fine ounce in March 2026. This may change, however, as the rand strengthened by 3% against the US dollar during early May. A truce in the Middle East is bound to strengthen the region, which should eventually lower fuel prices again.
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.