Rising oil prices driven by Middle East tensions pose an increasing risk to South Africa’s consumer-driven economy, while the country continues to lag behind peer economies in terms of growth, S&P Global Ratings has warned.
Speaking at a conference in Johannesburg on Tuesday, S&P director Ravi Bhatia said South Africa remained “an outlier” among comparable economies, consistently ranking near the bottom on growth performance, a weakness that continues to weigh on fiscal revenues and job creation.
South Africa’s economy is heavily reliant on household consumption, making it particularly vulnerable to fuel price shocks and inflationary pressures triggered by global energy market volatility.
S&P maintained its sovereign credit ratings for South Africa at BB for foreign currency and BB+ for local currency last week, following a previous upgrade in November the agency’s first upward revision in nearly two decades.
The upgrade had been driven by easing inflation, improving growth prospects and progress in fiscal consolidation, although the latest assessment points to renewed external risks.
The ratings agency revised its oil price forecast to US$100 per barrel for the remainder of the year and $75 next year, warning that sustained higher energy costs could feed into inflation, transport expenses, fertilizer prices and food costs.
Higher fuel prices are particularly significant for South Africa, where transport costs play a key role in determining food inflation and broader consumer price trends.
Inflation rose in April, largely driven by energy-related pressures, prompting the South African Reserve Bank to respond with interest rate increases. However, higher borrowing costs risk dampening already weak consumer spending.
S&P said the government’s fuel levy cuts, aimed at cushioning households from rising energy prices, were fiscally neutral, as they were offset by commodity-linked revenue gains. It added that authorities could extend the levies depending on future fiscal conditions.
Despite some incremental progress in infrastructure reforms, including at state logistics company Transnet and efforts to increase private sector participation in ports, S&P said these measures were unlikely to significantly alter South Africa’s weak growth trajectory.
Ravi Bhatia said such reforms were “not a game changer on the growth story,” adding that South Africa lacked a comprehensive, long-term growth strategy compared with other emerging markets.
He noted that some countries were actively pursuing innovation-led growth models aimed at developing high-growth technology firms, while South Africa’s approach remained largely focused on addressing structural bottlenecks.
South Africa’s sluggish economic performance continues to weigh on public finances, with weak growth limiting tax revenue collection and increasing pressure on government borrowing requirements.
Analysts say the country’s vulnerability to external shocks — particularly oil price fluctuations — underscores the challenge of balancing fiscal consolidation with the need to stimulate economic growth.
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The latest comments from S&P highlight the continued scrutiny facing South Africa’s economic outlook as policymakers grapple with energy costs, infrastructure constraints and subdued investment levels.
