South African equities face an increasingly complex macroeconomic backdrop heading into 2027. A potentially powerful El Niño cycle, elevated energy prices and persistent geopolitical disruption create renewed upside risk to inflation while domestic economic growth remains subdued. For equity investors, the key issue is how the interaction between inflation, real GDP growth and monetary policy affects earnings across the JSE.
The impact on equities depends largely on how much higher inflation and geopolitical uncertainty weaken real GDP growth. Nominal GDP may remain resilient as prices rise even as volumes fall, making margins and cash generation increasingly important.
The difference between real GDP growth of 1.0% and 2.0% is particularly significant for domestically exposed cyclical companies. When growth is at or below 1.0%, domestic equities and listed property tend to lag the other major asset classes such as cash and bonds. When growth exceeds 1.5%, South African equities and listed property tend to outperform, as shown below.
Asset class returns by SA real GDP growth band
Source: Bloomberg, Terebinth Capital, Investec Securities Calculations, Data from 2008 to August 2026
South Africa’s recovery remains vulnerable to weak domestic momentum and external shocks, including conflict in the Middle East and extreme weather, which could push inflation higher and keep monetary policy tighter. Consensus forecasts suggest that real GDP growth could settle at around 1.2% in 2026, with risks skewed to the downside. Fixed investment is expected to recover only modestly, while household consumption may slow as confidence weakens.
El Niño could compound these pressures through weaker rainfall and lower agricultural yields. Together with shipping and supply disruptions, food, energy and transport costs could remain elevated, reducing household purchasing power and limiting the South African Reserve Bank’s scope to lower interest rates. By contrast, a more stable growth environment of at least 1.5%, accompanied by contained inflation and gradual interest rate cuts, would support real incomes, reduce debt servicing costs and improve the outlook for domestically focused companies. In this environment, SA equities and property should outperform cash and bonds.
Implications for consumer facing companies
The outlook is not uniformly negative for consumer equities. Food retailers are better positioned than discretionary retailers and food producers because they have historically been able to pass higher food inflation on to customers, although often with a delay. This can support nominal sales growth when grocery volumes remain resilient. Food producers face greater pressure, as higher input costs may be incurred before they can be recovered. This can squeeze margins, particularly when consumers are price sensitive and retailers resist large supplier price increases. Inflation may therefore lift nominal revenue while reducing profitability.
Discretionary retailers are likely to face the greatest pressure, as spending on apparel, household goods, vehicles, restaurants and leisure competes directly with essential expenditure. As food, fuel and electricity absorb more of household budgets, discretionary volumes are likely to weaken. Higher interest rates add to the pressure by increasing debt servicing costs and delaying a recovery in credit sensitive consumption.
Banks are also sensitive to the relationship between real GDP growth and interest rates. In a stronger growth environment, lower rates improve debt affordability and credit demand while moderating credit losses. Stronger loan growth and fee income can also offset pressure on net interest margins. On a year-to-date basis, food producers and retailers have struggled significantly as resources, healthcare and telecoms have led the way.
Resources can continue to provide a defensive refuge
Commodities can provide a useful hedge in a structurally higher inflation environment. Unlike domestically exposed companies, whose margins can be squeezed as input costs rise and household demand weakens, commodity producers often benefit directly from the higher prices driving inflation. This is particularly relevant where supply is constrained: higher energy, freight and operating costs can lift commodity cost curves and establish a higher price floor, as we are currently seeing.
The opportunity is also increasingly structural rather than purely cyclical. Copper, for example, is moving from a property led demand cycle towards an electricity led infrastructure cycle, supported by grid investment, electrification and AI-related power infrastructure. At the same time, mine supply remains constrained and increasingly dependent on fewer, larger and more complex projects, supporting higher incentive prices (the level required for a new mine to cover its costs and generate an adequate return on capital) over the medium term. This combination of inflation sensitivity, constrained supply and structural demand means selected commodities can offer both earnings resilience and diversification when persistently high inflation places pressure on domestic consumption and interest-rate-sensitive sectors.
The bottom line
Taken together, these trends point to selective but genuine opportunities for SA equities, despite an uneven macro backdrop.
