South Africa’s economy grew slightly faster than expected in the first three months of the year, showing brief resilience before the full impact of the Middle East conflict hit local markets. The expansion covered up a sharp drop in household spending and corporate investment.

Gross domestic product increased 0.5 percent in the first quarter, following a 0.4 percent expansion in the previous three months, Statistics South Africa said in Pretoria on Tuesday. The figure beat the 0.3 percent median estimate in a Bloomberg survey of 15 economists.

Year-over-year, first-quarter output rose 1.9 percent, following a 0.8 percent increase in the prior quarter. Economists expected 1.7 percent growth. The numbers follow a broader recovery last year, when the economy grew 1.1 percent after a 0.5 percent expansion in 2024.

Global fuel squeeze hits South Africa

While the headline figures beat estimates, underlying data shows trouble ahead for the country. Rising tensions in the Middle East closed the Strait of Hormuz, driving up global oil prices and raising costs for local businesses.

Because South Africa imports its oil, record-high gasoline prices are eating into household budgets. The South African Reserve Bank cut its full-year growth forecast to 1.2 percent from 1.4 percent, citing the pressure of sustained energy costs on the economy.

To contain rising prices, the central bank raised its benchmark interest rate last month for the first time in three years. Policymakers said that disruptions to global fuel and fertilizer shipments may force them to raise borrowing costs again later this year.

“The evidence is starting to show, but this release only covers through March, and the conflict began late in February,” said Joe de Beer, deputy director-general at Statistics South Africa. De Beer added that commercial farming faces particularly heavy cost pressures ahead.

Consumer spending hits eight-quarter low

Domestic demand fell sharply during the quarter. Household spending grew just 0.1 percent, down from 1.2 percent in the previous three months, marking the weakest performance in eight quarters as consumers cut back on restaurants, hotels, and discretionary purchases.

Fixed investment dropped 1.1 percent in the first quarter, pulled down by reduced corporate spending on new machinery, equipment, and residential construction projects. The decline pulled 0.2 percentage point away from the total gross domestic product figure.

A shift in international trade kept the overall growth figure positive. Net exports added 0.9 percentage point to total GDP expenditure, primarily because overall imports shrank 2.6 percent due to lower inbound shipments of machinery, textiles, and precious gems.

Nine out of ten local industries reported positive output during the three-month period. The financial sector led the expansion, growing 0.9 percent. Manufacturing was the sole detractor, contracting 0.8 percent and pulling 0.1 percentage point from the quarterly growth total.