GDP decline: Fewer salary increases or chances of tax relief may be on the cards
Higher long-term interest rates are also likely.
South Africa's economy contracted by 0.2% in the second quarter of 2026, marking a significant slowdown that could have broader implications. The decline was largely attributed to the ongoing war in the Middle East, which has disrupted global trade, raised energy costs, and increased pressure on an already fragile economy. This contraction, which exceeded expectations, could limit businesses' ability to provide salary increases, create new jobs, or avoid layoffs.
Consequently, weaker government revenue may also reduce the likelihood of meaningful tax relief for households next year. This development comes as a surprise to economists, with Professor Waldo Krugell noting that the decline is worse than previously anticipated, with most predicting only 0.1% growth. The manufacturing sector, which shrank by 1.8%, contributed to a significant portion of the contraction, with several key divisions reporting negative growth rates.
The mining and quarrying industry also faced the largest decline, at 3.0%. Weak economic growth means less investment and tax revenue for the government, potentially leading to higher long-term interest rates and making it more challenging for households to stretch their incomes amid rising living costs.
Written by urgent.news from The Citizen's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
