Statistics South Africa (Stats SA) announced last Tuesday that South Africa's Gross Domestic Product (GDP) contracted by 0.2% in the second quarter of 2026 compared to the previous quarter.
This was the first economic downturn since Q3 2024, amid the fallout from the Middle East conflict.
Three of the ten industries contracted, led by trade, catering and accommodation (-1.9%), while energy intensive manufacturing and mining fell 1.8% and 3.0%, respectively.
Agriculture, however, provided some cushion, rising 0.3% on stronger activity in horticulture and field crops.
The negative economic growth made a big contribution to the sharp increase in the unemployment rate in Q2 to 33.6%, up from 32.7% in Q1.
Together with the sharp increase in the Brent oil price last week, climbing above $107 to $109 a barrel, the steepest weekly increase since July, financial markets in South Africa came under severe pressure.
The Rand exchange rate depreciated from R15.97/$ the previous Friday to R16.20/$ last Thursday, but closed somewhat stronger at R16.13/$ on Friday. On the JSE, almost all the main indices traded down, recording a second week of negative growth.
The ALSI closed Friday at 1.33% lower over the week, the Resources 10 Index traded down by 1.01% over the last seven trading days, whilst the Industrial 25 Index (IND25) lost 1.77%, and the Financial 15 (FIN15) contracted by 1.2%.
Precious metal prices moved sideways but were mostly negative last week.
The gold price dropped $60 per ounce (2.3%), Platinum lost $28 or 1.63%, and palladium traded down by $37 (5.2%). On the capital market, the 10 year bond rose to 8.94%.
US inflation remains on the same level
The annual inflation rate in the US steadied at 3.4% in August 2026, the same as in July and in line with forecasts.
Gasoline prices rose 27.4%, slightly more than 24.6% in July, and fuel oil prices increased 52%, compared with 39.1% previously. It was expected that the rate would increase to 3.9%.
Given the current rate above 3.0%, markets are still pricing in an 85% probability that the Fed will raise interest rates by 25 basis points at their upcoming meeting this coming week, 15 to 16 September.
Equity prices on Wall Street recovered sharply on Friday on the news that the inflation rate moved sideways during August.
For the week, however, they traded downwards in reaction to the sharp oil price increase and discounting of the expected 88% chances that the Fed will increase interest rates on Wednesday. The Dow Jones Industrial Index ended the week down 1.6%, the NASDAQ lost 0.7% and the S&P 500 0.8%.
Fuel prices are on track for a sharp increase in October
The weaker trend in the Rand last week, and the strong increase in the Brent oil price, continue to put diesel and petrol prices under pressure to surge strongly at the beginning of October.
The price for diesel 0.005% by Thursday, 10 September, was under recovered by R2.04 per litre and the price for 95 ULP petrol was under recovered by R2.14 per litre.
The upward pressure on fuel prices and its expected effect on South Africa’s inflation rate over the months to come, together with a strong possibility of a hike in the bank rate by the FOMC next week, increases the chances by a big margin that the Monetary Policy Committee of the South African Reserve Bank (Sarb) may increase the repo rate at its next meeting on 22 September 2026.
Prospects for the coming week
The focus on equity, bond and exchange rate markets will be on the decision by the Federal Reserve on Wednesday on interest rates in the USA.
US retail sales will be released on Wednesday and will also be of note.
Elsewhere, the UK will announce its unemployment rate on Tuesday, the latest annual inflation rate on Wednesday, and the Bank of England will decide on interest rates on Thursday.
Domestically, Stats SA will publish South Africa’s retail sales for July on Wednesday.
Chris Harmse is the consulting economist of Sequoia Investment Solutions and a senior lecturer at Stadio Higher Education.
**The views expressed do not necessarily reflect the views of the National Media Group.