South Africa’s business mood softened in the second quarter as companies faced a more unsettled global setting, where conflict in the Middle East, higher energy costs and shifting expectations around interest rates began to filter into day-to-day decisions on spending, hiring and pricing.

The latest reading of the business confidence index, compiled by Rand Merchant Bank in partnership with Stellenbosch University’s Bureau for Economic Research, slipped eight points to 39 in the three months through June. It was the weakest level since the third quarter of 2025, underscoring how quickly sentiment has cooled after a relatively steadier start to the year.

Consumer sectors face spending restraint

The decline was not confined to one area of the economy. It was felt across sectors, but it was most visible in consumer-facing businesses, where households are already stretching budgets and showing more caution with discretionary spending. Retailers, service providers and transport-linked firms reported a more hesitant customer base, with fewer long-term commitments and tighter control over costs.

Much of the pressure stems from developments far beyond South Africa’s borders. The escalation of tensions in the Middle East has pushed global oil prices higher, with crude rising by roughly a third since late February after strikes by the United States and Israel on Iran. The increase has fed directly into fuel costs locally, with gasoline prices hitting record levels and forcing businesses to rethink assumptions tied to logistics, input costs and pricing.

That external shock has arrived at a time when monetary conditions are already tightening. The South African Reserve Bank raised its benchmark interest rate by 25 basis points to 7% last week, the first increase in three years. Policymakers pointed to renewed inflation risks linked to energy markets and broader global uncertainty, suggesting that further increases remain on the table if conditions do not stabilize.

Inflation pressures tighten corporate planning

Officials have also indicated that rates could rise by another 75 basis points by the third quarter if the conflict continues to drive inflation higher. That outlook has added pressure on corporate planning, particularly for firms weighing expansion, borrowing, and capital investment in an environment where financing costs are no longer expected to ease in the near term.

Isaah Mhlanga, chief economist at Rand Merchant Bank, said the latest data reflects how quickly global events are shaping domestic sentiment. He noted that rising energy prices and shifting rate expectations have forced companies to reassess forecasts, while customers have become more careful with spending decisions.

For now, the picture is one of an economy adjusting to higher costs and less predictable external conditions. Any sustained recovery in confidence will likely depend on a calmer oil market, clearer signals from global policymakers, and a reduction in geopolitical tension. Until then, businesses are operating with a narrower margin for error, and planning more cautiously than earlier in the year.