As we head into 2026, South Africans are watching inflation, interest rates, and gross domestic product (GDP) growth closely. These are all factors that shape the cost of living, borrowing costs, the return on savings, and the overall health of the economy. Although global conditions remain uncertain, the latest data suggests a cautiously improved outlook supported by easing inflation and the potential for lower interest rates.

South Africa's economic landscape is shaped by what happens internationally, and the January 2025 edition of the World Economic Outlook, an authoritative bulletin issued by the International Monetary Fund (IMF), shows moderate but steady global progress. The IMF expects the global economy to expand by 3.3% in 2026 – a slight improvement from earlier projections. Global headline inflation is also forecast to decline from 4.1% in 2025 to 3.8% in 2026, offering a more stable environment for emerging markets like SA.

The outlook is supported by continued investment in technology, especially AI, and resilient private sector activity. However, US tariffs remain a key risk that could influence global financial markets if they escalate. The tariff risk reflects uncertainty in the global political outlook, made worse by conflicts like those in Ukraine, Iran, and Lebanon. This uncertainty is driving a rise in commodity prices, especially gold, which has a positive effect on SA's economic position.

Sub-Saharan Africa in general is expected to benefit from stronger commodity prices and stabilisation efforts. The growth forecast of 4.6% in both 2026 and 2027, and SA's public sector reforms, especially in electricity and logistics, are positive contributors to stability.

South African GDP growth

The IMF revised SA's GDP growth outlook slightly upwards, with the economy expected to grow by 1.5% in 2026, up from an estimated 1.4% in 2025. This aligns with other global projections and reflects our more stable inflation environment, the expectation that interest rates will decrease, and structural reforms. While growth remains below potential, a lower prime interest rate and less constrained financial conditions could support investment, lending, and consumer confidence.

Interest rates and inflation

Inflation is a direct driver of current interest rates, and there are encouraging signs that price pressure is easing. Economists expect inflation in South Africa to remain near the midpoint of the target range, with a projected 3.4% in 2026. Nedbank sees underlying inflation as stable and muted, as it responds to lower global food prices, increased supply from strong domestic harvests, and a more stable petrol price. Of course, this scenario has already changed with the sudden onset of the US-Israel war against Iran, which has pushed the oil price over $100 per barrel.

As things stand, the South African Reserve Bank (SARB) has stated that the economy remains on track to achieve SARB’'s 3% inflation target over the medium term. This more stable environment helps set the stage for rate cuts – which would be a welcome development for those with home loans, personal loans, and business debt. We've already seen some relief, with SARB cutting rates by 1.5 percentage points since late 2024. This brings the current prime lending rate to 10.5%, which influences all debt interest rates.

In the Monetary Policy Committee meeting at the end of January 2026, SARB voted to keep the repo rate at 6.75%, holding the prime lending rate at 10.5%. This means that indebted consumers will be paying the same on loans and credit, while savers will continue earning the same interest on deposits. Though SARB was cautious in its deliberations, most economists expect further interest rate cuts in 2026.

A lower prime rate will further bring down current mortgage, loan, and other bank interest rates, reducing the cost of borrowing for households.

SARB remains focused on reaching and sustaining the new 3% inflation target, which means you can expect rate cuts to be measured rather than rapid. Although more rate relief is coming, SARB is likely to proceed slowly given global volatility. Looking ahead, SARB's long-term model shows the repo rate gradually declining to 5.75% towards the end of the forecast horizon and ultimately reaching a steady 5.5% – but only by 2029.

The oil price and the Iran war

South Africa imports most of its crude and refined products. Government sets local fuel prices via a regulated formula that tracks international product prices (linked to Brent) and the rand/dollar, with a roughly one‑month lag, so oil shocks transmit quickly to the pump, and then to transport and food costs.

Inflation, interest rates, and GDP growth shape the cost of living, borrowing costs, returns on savings, and overall economic health. Much now hinges on how the war in the Middle East evolves and what that does to global oil prices.

Considering 3 potential oil price scenarios

• Scenario 1
  If the Iran war persists and the oil price continues to rise, our inflation will start rising towards 4%. In this scenario, SARB will hold interest rates steady for longer and reduce growth projections for the economy to between 1.1% and 1.3%. We can expect higher fuel and food prices through mid‑year. 

• Scenario 2
  If the war ends but the oil price stays high on the back of disrupted supply, South African inflation will likely stabilise between 3.4% and 3.8%. SARB will then likely delay rate cuts to the second half of the year, and revise growth estimated for GDP to between 1.3% and 1.5%.
  
  
• Scenario 3
  If the war ends soon and the oil price falls back to affordable levels, inflation will stay in the target range of between 3% and 3.3%, interest rate cuts will be more likely earlier in the year, and growth projections go back up to between 1.5% and 1.7%.

What this means for your financial decisions

If the war in Iran were to end without causing further disruption, you could expect lower interest rates to reduce your repayments on products linked to the prime rate, including vehicle loans, home loans, and other variable-rate credit. The positive signs at the start of the year promised some breathing room for households managing debt and fighting to maintain buying power despite inflation. Lower rates could also be a chance to switch to fixed interest rates to lock in certainty for future repayments, or you can stay on variable rates if you expect further cuts.

However, in the scenarios given above, you might need to update your financial management:

• Borrowing
  In scenarios 1 and 2, rate cuts will be smaller and come later, so consider fixed interest rates on loans that offer you this option. If we end up with the more positive scenario 3, a variable interest rate will be likely to benefit you sooner.
  
  
• Budgeting
  Build some contingency funds for fuel and food price rises into your budget for the first half of the year, then reassess when trends relating to the war and oil prices become clearer.
  
  
• Savings
  Invest in savings accounts for different short-term and long-term goals – with interest rates expected to drop some more, you'll want to start your investments at the best available rates.

South Africa and most other countries entered 2026 with a cautiously positive economic outlook. The geopolitical situation does put that optimism at risk, but it is still possible to adapt and create positive outcomes.

Take stock of the savings, borrowing and other banking options that Nedbank offers to stay resilient in times of change and upheaval.