The PayInc Economic Index released on Wednesday indicated a positive increase of 0.4% in February; however, there is major concern about the impact of Middle East tensions and its impact on the economy of South Africa.
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South Africa’s economy showed early signs of resilience in February, but escalating geopolitical tensions in the Middle East now threaten to derail that momentum, with surging oil prices and a weakening rand raising fears of a severe economic shock.
The latest PayInc Economic Index, released on Wednesday, recorded a modest increase of 0.4% in February, pushing the index level to 103.9. According to Shergeran Naidoo, Head of Stakeholder Engagements at PayInc, the index was 3.5% higher than a year earlier, signalling steady economic activity at the start of 2026.
Transaction volumes also pointed to underlying strength. A total of 177.9 million transactions were cleared during the month, marginally higher than January’s 177.8m and up 12.5% year-on-year. The nominal value of electronic transactions climbed sharply to R1.33 trillion, compared with R1.25trln the previous month.
However, this cautiously optimistic picture has been rapidly overshadowed by global developments following the outbreak of conflict involving the United States, Israel and Iran at the end of February.
Independent economist Elize Kruger warned that the war has “abruptly reversed” the improving outlook for both South Africa and the global economy.
“The most immediate impact will be felt at fuel stations, locally and abroad. The international oil price has surged by more than 40% in March to the highest level since 2022, after the US-Israeli attacks on Iran prompted Tehran to halt shipping through the Strait of Hormuz, constraining a fifth of global oil supply,” she said.
Kruger said that additionally, the rand depreciated by 6.3%. This combination is set to translate into record fuel price increases in April. Current data points to daily under-recoveries of R7.45 per litre for 95 unleaded petrol and R6.61 per litre for 93 unleaded as of mid-March. Diesel users face an even sharper shock, with under-recoveries reaching R11.30 per litre.
Kruger added that these increases will be the highest ever to be implemented in a single month in South Africa and will likely derail the fragile economic recovery envisaged for South Africa in 2026.
“It is also likely that fuel prices will increase over several months, given South Africa’s fuel price determination that incorporates a slate account," Kruger said.
"The slate account is a cumulative, self-adjusting mechanism used to manage the difference between the Basic Fuel Price (BFP), the daily, fluctuating international cost of imported fuel, and the regulated monthly pump price.”
Kruger said that given the extent of the expected fuel price increases, companies are unlikely to absorb the rising costs. Consumer inflation is forecast to increase from 3.2% in March to around 4.5% in April, with knock-on effects across the economy.
“This could lift average inflation to 4.4% in 2026, above the SARB’s 3% target, increasing the risk of interest rate hikes. While the SARB may hold steady in March, a rate hike could come sooner than expected.”
Kruger added that South Africa has become increasingly dependent on imported fuel, with local production falling from 80% at its peak to just 35% of demand.
“Imports now supply nearly two-thirds of the country’s fuel needs. With global supply routes disrupted, shortages and price pressures are likely to persist, even if the conflict is resolved in the near term," she said.
"The country’s vulnerability to fuel supply will, in all probability, now be exposed like never before.”
Kruger said that the reality suggests that industry players might be limited in what can be offered as solutions in a scenario where fuel problems are being felt in many countries right now.
“According to industry sources, the supply crunch is already felt on a wholesale level, with oil companies restricting fuel supplies to wholesale and commercial customers. These include customers in the agricultural, mining, and transport sectors, the heartbeat of the economy.”
Kruger concluded that the physical shortages of fuel experienced over an extended period could trigger a worst-case economic scenario that might remind us of the Covid-19 lockdown period; for example, arrangements such as working from home and cancelling unnecessary travelling could be returning, a negative confidence shock that could bring the economy to its knees.
BUSINESS REPORT