South African Rand: Growth quality weighs on ZAR – Commerzbank

Commerzbank’s Volkmar Baur notes that stronger-than-expected South African GDP growth masks weak underlying domestic demand, with consumption and private investment soft while government spending dominates. He warns that higher energy import prices, lower precious metal export prices and uncertainty from the Iran conflict could hurt trade and sentiment, posing downside risks for the South African economy and the Rand.

External shocks threaten fragile demand

"Figures on South African GDP growth released yesterday showed that the economy grew slightly faster in the first quarter than most analysts had expected, according to a Bloomberg survey. However, the details were less encouraging."

"On the positive side, rising exports and falling imports led to a significantly positive trade balance, and inventory changes had a negative impact on growth. As the latter typically evens out over time, the negative inventory contribution should not be negative in the long term and might even revert to growth."

"Less encouraging, however, was that domestic demand from consumption and investment was driven almost exclusively by the government. Private consumption grew by a mere 0.1% in the first quarter - virtually flat - and private investment, after two strong quarters, declined significantly again in the first quarter of 2026."

"This does not bode well for the second quarter. Due to the Iran conflict, foreign trade is likely to come under pressure, as import prices for energy have risen sharply, while precious metal prices - which are an important export good - have fallen."

"At the same time, the uncertainty surrounding the conflict is likely to have weighed on both consumer and investment sentiment. For the South African economy and the rand, the end of the Iran conflict therefore cannot come soon enough."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)