South Africa’s improving economic outlook has been clouded by the Middle ​East conflict, which is pushing up energy costs ​and complicating monetary policy, the Institute of International Finance ⁠said on Tuesday.

The IIF cut its 2026 growth forecast ​to 1.3% from 1.7% previously.

Inflation is now expected to average ​4% this year, up from around 3% expected before the war.

South Africa increasingly reliant on Gulf Cooperation Council (GCC) for refined petroleum products, leaving ​it exposed to supply disruptions from the Strait of ​Hormuz.

Diesel prices rising faster than petrol due to greater reliance on imports ‌and ⁠weaker price regulation.

Market pricing has shifted to two interest rate hikes this year from two cuts previously.

The current account deficit is expected to widen to 1.1% of GDP in 2026 ​from 0.5%.

Fiscal ​deficit estimated at ⁠4.5% of GDP for fiscal year 2025/26 which ended in March; IIF projects it narrows ​to 4.1% in current fiscal year.

Government debt ​expected to ⁠ease gradually to 77.1% of GDP in the medium-term from a peak of 78.9% of GDP in fiscal year 2025/26.

On ⁠the ​upside, port and rail reforms could ​benefit from cargo rerouting around the Cape of Good Hope; elevated commodity prices ​support mining investment.

SOURCE: Reporting by Colleen Goko, editing by Karin Strohecker/REUTERS