South Africans feel the squeeze as economy faces another challenging week

CONSUMERS Ashley Lechman | Published 1 hour ago South Africans received some welcome relief at the fuel pumps this month, but the country's broader economic picture continued to paint a far more challenging reality for consumers as rising living costs, slowing economic activity and renewed global tensions kept pressure firmly on household budgets. The week was marked by a series of economic reports that illustrated how domestic challenges are increasingly intersecting with global uncertainty, leaving consumers facing higher costs while businesses remain cautious about the months ahead. Economic activity weakened during June, reflecting softer demand across several sectors as businesses continued to grapple with fragile consumer spending and an uncertain trading environment. Business confidence also remained subdued as companies pointed to rising operating costs and weak demand. While fuel costs eased from the beginning of July, economists warned that households remain under pressure from expensive food, higher municipal tariffs, electricity costs and fragile employment prospects, with recent economic indicators suggesting that any meaningful recovery may still be some way off. One of the clearest signs of slowing momentum came from the latest PayInc Economic Index, which showed South Africa's economic activity declined by 0.9% in June after a revised 2% contraction in May. At 102.4, the index reached its lowest level since November 2025, although it remained 2.5% higher than a year ago. Elize Kruger, independent economist, said uncertainty continued to weigh heavily on households and businesses despite the signing of a peace framework between the United States and Iran during June. "As such, many remain cautious, delaying spending and investment decisions. This is reflected in the softer economic activity recorded during the second quarter," Kruger said. She added that while electronic transactions recovered moderately during June, the broader index remained under pressure because of higher inflation, largely driven by elevated fuel prices. "The second quarter has demonstrated just how quickly confidence can shift in response to global and domestic developments. While electronic payments activity remains resilient, the broader economic picture suggests that growth is likely to remain subdued until inflationary pressures ease and confidence returns meaningfully," Kruger said. PayInc processed 186.8 million electronic transactions during June, up 11.6% from a year earlier, suggesting consumers and businesses continued embracing digital payments despite economic uncertainty. "The growth in digital payments demonstrates that consumers and businesses increasingly rely on electronic transactions for their everyday payment needs, even during periods of economic uncertainty," said Shergeran Naidoo, Head of Stakeholder Engagement at PayInc. Economists warned that the weaker activity could have wider implications for South Africa's economy. PSG senior economist Johann Els said the decline reflected expectations for the second quarter. "There is a huge concern that this could lead to GDP to decline in Q2 2026. I do believe there will be some rebound in the second half of the year," Els said. The difficult environment was also reflected among South Africa's small and medium enterprises. The latest SME Confidence Index released by Business Partners Limited showed confidence weakened during the second quarter as rising fuel prices linked to Middle East tensions pushed businesses into survival mode. Confidence in the South African economy as being conducive to business growth declined by six percentage points to 63%, while confidence in respondents' own businesses fell by four percentage points to 77%. Jeremy Lang, Managing Director at Business Partners Limited, said businesses were becoming increasingly focused on resilience rather than expansion. "These findings suggest a clear shift among SMEs away from growth and expansion towards short term survival, cost management and operational resilience," Lang said. The agriculture sector also reflected growing caution. According to the South African Agricultural Machinery Association, tractor sales declined by 2% year on year during June while combine harvester sales fell 15%. Chairman Willie Human attributed the slowdown to uncertainty surrounding crop yields, higher input costs and concerns over a possible El Niño weather pattern. Wandile Sihlobo, chief economist at Agbiz, said the softer sales reflected changing conditions after a strong period for the sector. "There was always going to be some normalisation," Sihlobo said. He added that while easing oil prices were helping reduce input costs, uncertainty remained elevated and higher costs continued to weigh on farmers. International developments also dominated financial markets during the week. The International Monetary Fund (IMF) lowered its global growth forecast for 2026 to 3%, down from 3.3% at the start of the year, warning that renewed conflict in the Middle East could disrupt trade, increase commodity price volatility and keep inflation elevated. The IMF also warned that the global disinflation trend that had been in place since early 2024 had stalled, with headline inflation now expected to rise to 4.7% during 2026 before easing again in 2027. Financial markets reacted sharply to renewed military tensions in the Middle East. Bianca Botes, Managing Director at Citadel Global, said investors had moved rapidly towards safer assets after renewed hostilities between the United States and Iran. "The announcement has become a catalyst for heightened volatility, with investors seeking refuge amid escalating geopolitical tensions," Botes said. Crude oil prices surged to around $78 per barrel as concerns over global supply intensified. "As the chances of rate hikes by central banks loom larger due to increasing energy costs, gold's safe haven allure starts to diminish, pulling traders into the oil market instead," Botes said. For South African consumers, however, the week's developments reinforced a familiar reality. Last week, economists noted that lower fuel prices and easing food inflation offered welcome relief, but warned that higher electricity tariffs, municipal charges, debt repayments and ongoing job losses continued to erode household finances. Frank Blackmore, Lead Economist at KPMG South Africa, said lower fuel prices should gradually ease inflationary pressures throughout the economy. "The pressure of those prices translates through the entire economy. To move any goods around the economy, we use these fuels, and a decrease in those costs will mean those transactional transport costs will decrease as well," Blackmore said. However, Neil Roets, CEO of Debt Rescue, cautioned that consumers should not expect immediate financial relief. "Fuel, electricity, municipal charges, transport and food costs rarely increase in isolation. Together they create a compounding affordability problem that places sustained pressure on household cash flow," Roets said. As the second half of 2026 begins, South Africans continue to face an economy balancing cautious optimism with persistent challenges.