Cape Town – South Africa’s economy is showing tentative signs of recovery after contracting in the second quarter, with economic activity improving for a second consecutive month in August, according to the latest PayInc Economic Index.
The index, which tracks the real value of money flowing through South Africa’s electronic payment system, increased 0.8% month on month in August, following a revised 0.6% rise in July. It was also 2.7% higher than a year earlier.
The improvement offered some resilience after a difficult second quarter.
Independent economist Elize Kruger told Business Day that the latest figures were encouraging, saying: “The improvement in July and August is encouraging and suggests the economy could return to growth in the third quarter, though probably at a moderate pace.”
However, Kruger cautioned that the economy still faced significant risks.
“However, the economy is by no means out of the woods, with renewed fuel price pressures and continued uncertainty posing downside risks.”
Situation in the Middle East
The improvement comes after South Africa’s gross domestic product contracted by 0.2% in the second quarter of 2026, ending six consecutive quarters of growth.
Reuters reported that the contraction was driven mainly by declines in mining, manufacturing and trade.
Mining output fell 3%, manufacturing declined 1.8% and trade dropped 1.9%. Statistics South Africa economic statistics head Joe de Beer said the impact of the Middle East conflict was reflected in the figures.
“The situation in the Middle East definitely reflected in these numbers. The question we don’t yet know is how long this will persist, especially for manufacturing,” de Beer said.
Household spending remained positive during the second quarter, although fixed investment declined again.
Higher fuel prices
The August PayInc data also showed that payment activity remained relatively strong despite a decline from July’s record levels. Transactions processed through the system fell to 196.3 million in August from 201.5 million in July, but remained 10.4% higher than a year earlier. The nominal value of electronic transactions fell from R1.521 trillion to R1.426 trillion.
The outlook remains clouded by higher fuel prices, weak investment and uncertainty. Business Day reported that international oil prices had risen to around $107 a barrel, raising the prospect of another significant increase in domestic fuel prices in October.
Kruger said the uncertainty was also affecting business decisions, with companies becoming more cautious about “investment, expenditure and expanding their workforces.”
The latest data therefore point to an economy that may be regaining some momentum, but with the strength and durability of any third-quarter recovery still dependent on consumer spending, investment, fuel prices and global economic conditions.
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Compiled by Betha Madhomu
