By Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole & Ame Muller
This week's data releases painted a subdued picture of South African economic activity in the second quarter of the year (2Q26). While some monthly production indicators showed signs of stabilisation, the broader data suggests that growth remained weak amid deteriorating labour market conditions and continued production-sector weakness.
The most significant release was the 2Q26 Quarterly Labour Force Survey (QLFS) that highlighted a further deterioration in labour market conditions. The official unemployment rate increased to 33.6% from 32.7% in 1Q26, with year-to-date job losses broad-based across skill level (Figure 1). The rise in unemployment underscores the economy's continued inability to generate sufficient jobs despite six consecutive quarters of positive GDP growth. Weak labour market conditions are likely to remain a key constraint on household income growth and spending power, particularly as consumers continue to contend with elevated living and borrowing costs.
On the production side, manufacturing output remained under pressure. Production contracted by 1.7% year-on-year (y/y) in June, following a 4.4% decline in May. Although seasonally-adjusted production increased for a second consecutive month, the sector still contracted by 1.5% quarter-on-quarter (q/q) in 2Q26, indicating that the sector remained a drag on overall GDP growth.
Mining data also provided little encouragement. Output declined by 4.0% y/y in June following a 5.1% contraction in May. While production recovered marginally by 0.3% month-on-month (m/m), this was insufficient to reverse the sharp declines recorded earlier in the quarter, resulting in a 2.7% q/q contraction in 2Q26. Together, the manufacturing and mining data point to another weak quarter for the goods-producing sectors, reflecting persistent logistics constraints, elevated operating costs and subdued external demand.
A notable counterpoint to the weak real economy data was the continued improvement in public finances, highlighting the extent to which strength in mining-related revenues has diverged from underlying domestic economic conditions. South Africa's main budget surplus widened to R80 billion in June (Figure 2), from R49 billion in the same period last year, supported by strong revenue growth and restrained expenditure. Revenue collection benefitted from a surge in corporate income tax receipts, reflecting improved mining sector profitability amid elevated precious-metal prices, alongside solid growth in personal income tax collections, despite labour market weaknesses. Together, these compensated for the softer VAT receipts and lower fuel levy revenue due to the temporary fuel-relief measures earlier in the year. Overall, revenue growth continues to track comfortably ahead of the 2026 Budget projections. Lower debt-service costs and contained government spending provided further support, improving the near-term fiscal outlook and reinforcing expectations of a narrower budget deficit and a gradual decline in the public debt burden over the medium term.
Looking ahead, attention shifts to next week's inflation and retail sales releases which will provide further insights into the resilience of household demand and the extent to which relatively higher fuel costs are feeding through to inflation and consumer spending. For now, the latest releases reinforce the view that South Africa's recovery remains fragile and uneven. While the fiscus continues to benefit from strong mining-related revenues and expenditure restraint, weak employment creation and subdued production activity suggest that the economy ended 1H26 with limited growth momentum.
Weekly Round-Up: Economics from Broader Africa
African economic developments remain mixed, with external conditions and policy reforms shaping the outlook across the region. Southern African economies continue to benefit from relatively contained inflation, although Botswana faces a widening trade deficit amid weaker commodity exports, while Namibia and Eswatini remain focused on preserving macroeconomic stability through prudent monetary and fiscal policy. Elsewhere, Ghana's disinflation trend has resumed alongside efforts to deepen local capital market funding, while Nigeria is balancing stronger oil-sector investment prospects against persistent cost-of-living pressures. In Mozambique, inflation eased further as food prices softened, and in Zambia, investor attention remains firmly on the general election outcome and its implications for policy continuity and economic reforms.
