Economic Update October 2026
The Downside
Higher long-term interest rates are starting to put pressure on the fiscal affairs of several countries, with the premium of French 10-year government bond yields over safe-haven German yields rising to above 150 basis points on 2 October, the highest level in 15 years.
South Africa has not been spared from this trend, which is directly related to the war in the Middle East, now in its eighth month, causing a spike in fuel prices and higher global inflation.
Since the end of February, the yield on South Africa's 10-year government bond has climbed by 120 basis points, and the SA Reserve Bank's Monetary Policy Committee raised the prime lending rate (via the official repo rate) by 25 basis points to 10.75% in September.
This is bad news for indebted households, who will face higher mortgage bond repayments, and it will undoubtedly increase the ratio of household debt costs to household income, hurting the economy on the demand side.
Unless hostilities in the Middle East and Russia/Ukraine subside to the point that oil supplies can flow freely again, fuel prices will remain elevated, placing further pressure on consumers' pockets and keeping inflation higher than at the start of the year.
Statistics South Africa rubbed salt in the wounds of a struggling economy by reporting that higher growth remained elusive in the second quarter of the year, while unemployment rose further. As the country focuses on the upcoming municipal elections, we hope newly formed local governments will improve service delivery where it matters most.
The Upside
Trade surplus continues to swell.
During August, South Africa recorded a trade surplus for the 19th successive month, with exports of R182 billion and imports of R161 billion. Coincidentally, average monthly exports for 2026 have reached an all-time high, matching the August export figure of R182 billion.
The solid performance of the country’s trade balance nevertheless masks a combined decline in export and import values of R25 billion compared with July – one of the largest month-on-month declines on record. Two reasons for the overall decline in import and export trade are: first, a more subdued macroeconomic environment in the wake of higher interest rates; and second, the effective closure of the Strait of Hormuz by Iran.
Secondly, the problems associated with the new operating system (Navis N4) introduced at Durban Gateway Terminal (formerly known simply as Pier 2) persist. Hopefully, the new partnership between Transnet and the Philippines-based International Container Terminal Services, Inc. (ICTSI) will address these problems soon.
Welcome boost for manufacturing.
After a spell below the neutral 50 level for 13 quarters, the seasonally adjusted quarterly average of the country’s manufacturing Purchasing Managers’ Index (PMI) finally moved back into expansionary territory in the second quarter of 2026. The Absa manufacturing PMI is compiled by the Bureau for Economic Research at Stellenbosch University.
Although the quarterly average for July to September dropped marginally again, the September reading of 50.7 offered some hope for a continuation of the recent upward trend. The sub-index for new sales orders produced an impressive comeback, climbing from 40.3 in August to 50.8 in September. The reading for business activity also fared exceptionally well, jumping to 52.9 from merely 42.1 a month ago (non-seasonally adjusted).
Once the logistics bottlenecks at Durban Port have been cleared, the Absa PMI could improve further. However, input price pressures are likely to remain elevated until oil and fuel prices start normalising. Regarding the outlook, manufacturers remain cautiously optimistic, with the expected business conditions index for the next six months edging up to 55.3 from 54.7.
These findings are not out of sync with data on manufacturing activity published by Statistics SA. The sector started the third quarter on a positive note, with activity rising by 1.1% year-on-year, boosted by six of the ten manufacturing divisions recording positive growth. Food & beverages, petroleum, chemical products, and rubber & plastic products drove most of the upward momentum. Manufacturing output also rose month‐on‐month in July, with seasonally adjusted production up 2.2%.
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.
