South Africa’s economy contracts 0.2% in Q2 as mining and manufacturing slump

South Africa’s economy contracted by 0.2% in the second quarter, reversing 0.4% growth in the first quarter, Statistics South Africa (Stats SA) said on Tuesday.

Which sectors dragged growth

Three industries recorded contractions in the quarter. Mining fell 3%, manufacturing declined 1.8% and trade, catering and accommodation dropped 1.9%. Trade and manufacturing each subtracted 0.2 percentage points from overall GDP, while mining reduced growth by 0.1 percentage points.

Where activity held up

Some sectors recorded growth: agriculture rose 0.3%, electricity, gas and water increased 1%, and transport grew 0.9%. On the expenditure side, household spending increased 0.4%, but net exports knocked 1.1 percentage points off GDP as imports rose faster than exports.

Analysts and short-term signals

PSG senior economist Johann Els had expected the economy to be broadly flat or to contract by as much as 0.2% quarter-on-quarter, saying that “Mining and manufacturing were very weak, but consumers have held up reasonably well.” Els noted the quarter was the first full one to reflect the oil shock and higher petrol prices and said the May interest rate hike added further pressure.

On agriculture, Els said he had expected some support from the record maize crop but that some of the benefit could shift into the third quarter. He added: “This is not as weak as previously feared and would still leave the economy on track for around 1.4 to 1.6% growth this year, up from 1.1% in 2025. We’ll wait for the details before changing our forecasts.”

Monthly indicators and warnings

The PayInc Economic Index rose 0.3% in July to 102.7, and was 0.9% higher than a year earlier. Shergeran Naidoo, head of Stakeholder Engagement at PayInc, said of the July figures: “While the broader environment remains difficult, the latest PayInc Economic Index shows that economic activity regained some momentum during the month.”

Payment activity in July provided a brighter signal: transaction volumes reached a record high and were 13.5% higher than a year earlier, while the value of electronic payments also increased. Independent economist Elize Kruger cautioned that: “July offered a welcome improvement, but one month does not yet signal a sustained turnaround.”

Labour market deterioration

The labour market weakened in the second quarter. The official unemployment rate rose to 33.6% from 32.7% in the first quarter. The number of unemployed people increased by 345,000 quarter-on-quarter to 8.5 million, while employment declined by 16,000 to 16.7 million. The formal sector shed 41,000 jobs during the quarter.

Looking ahead

Stats SA’s Q2 release was the first quarterly contraction since the third quarter of 2024, when GDP fell 0.3%. More near-term data showed some improvement after the quarter ended, but economists emphasised that sustained recovery would depend on easing cost pressures and gains in confidence that support spending and investment.