JOHANNESBURG - 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.