FNB has nudged up its growth forecast for the South African economy, even as it flags a near-term inflation shock stemming from the Middle East conflict that is likely to push the Reserve Bank into a further interest rate increase this month. The bank’s economists now expect real GDP growth of around 1.2 percent in 2026, revised up from an earlier 1.0 percent, on the back of a stronger-than-expected first quarter that carried positive momentum into the rest of the year.
Growth is projected to strengthen further to 1.3 percent in 2027 and approach 2.0 percent by 2028 and 2029, according to the bank, though the current forecast trajectory still sits below its pre-war projection given the economic drag from the Middle East conflict. FNB’s economists, led by Mamello Matikinca-Ngwenya, described the medium-term outlook as constructive, citing lower borrowing costs and continued structural reform as gradual supports for business confidence, investment and employment.
That improving medium-term picture comes alongside a bumpier near-term one. Global energy market disruptions linked to the Middle East conflict have pushed inflation expectations higher, prompting the South African Reserve Bank to lift the repo rate by 25 basis points to 7.00 percent, with FNB pencilling in a further 25 basis point increase before the tightening cycle pauses. Headline inflation is now expected to average 4.3 percent in 2026, up from 3.2 percent in 2025, before moderating to 3.5 percent in 2027 and converging on the Reserve Bank’s new 3 percent target by 2028 and 2029.
| 2026 GDP growth forecast | 1.2%, revised up from 1.0% |
| 2027 / 2028–29 growth forecast | 1.3% / around 2.0% |
| Repo rate | 7.00%, with a further 25bps hike expected in July |
| 2026 inflation forecast | 4.3%, up from 3.2% in 2025 |
| Long-term inflation target | 3%, to be reached by 2028–29 |
| Gross forex reserves (June) | $74.1 billion, down from $76.6 billion in May |
| Manufacturing output (May, y/y) | -4.3%, worse than April’s -2.9% |
Food inflation remains relatively contained for now, offsetting some of the pressure coming from higher fuel prices, though FNB flagged an anticipated El Niño weather pattern as a modest upside risk to food prices later in the outlook period. The bank noted that nearly three consecutive years of above-average rainfall, including the wettest season on record, have left soil moisture and water reserves in a strong position, meaning a mild-to-moderate El Niño is unlikely to meaningfully disrupt domestic agricultural output or food inflation.
FNB’s broader view is that the current bout of inflation and rate pressure is largely externally driven and temporary. Beyond it, continued fiscal consolidation, the credibility of South Africa’s inflation-targeting framework and an improving sovereign credit outlook are seen as lowering the country’s risk premium, supporting a gradual recovery in household balance sheets, private sector credit extension and domestic demand as borrowing costs ease. That optimism sits against a weaker recent data print, with gross foreign exchange reserves slipping to $74.1 billion in June from $76.6 billion in May on a lower gold price and valuation effects, while manufacturing output fell 4.3 percent year-on-year in May, a deterioration from April’s 2.9 percent decline that FNB expects to weigh on second-quarter GDP.
The domestic outlook lands as global earnings season gathers pace, with FNB flagging Richemont’s first-quarter trading update, BHP’s fourth-quarter production report under new chief executive Brandon Craig, and Valterra Platinum’s production and sales update as key local releases this week, alongside a wave of United States bank earnings, including JPMorgan, Bank of America, Citigroup and Wells Fargo, that will set the tone for global risk sentiment into the second half of the year.