The North-West University (NWU) Business School’s Policy Uncertainty Index (PUI) increased to 77.8 for the first quarter, from 64.9 in the fourth quarter of 2025.

The elevated PUI in the first quarter reflected a sharp increase in economic uncertainty mainly driven by the current global energy crisis, with the movement of oil and gas, and other products, through the Strait of Hormuz in the Middle East severely restricted as war rages between Iran and the US and Israel.

A reading above 50 reflects heightened policy uncertainty, while a reading below 50 indicates reduced uncertainty.

The increase for the period under review reverses the previous decline in the fourth quarter of 2025 PUI, which, although also in negative territory, suggested that a positive turning point had been reached in South Africa’s business cycle, says NWU Business School's Professor Raymond Parsons.

The PUI reading of 64.9 in the fourth quarter of 2025 had shown a welcome easing from the index’s previous record of 81 registered in the third quarter of 2025.

Further, although still in negative territory, recent trends and developments had augured well for a further decline in the first quarter of this year. Various positive factors had emerged in South Africa’s macroeconomic landscape, ranging from an incipient economic recovery to stronger business confidence, Parsons says.

Additionally, GDP growth improved to 1.1% in 2025, which, although still far short of what South Africa needs, represented a turning point in the country's business cycle, compared with the GDP growth rates of 0.8% in 2023 and 0.5% in 2024.

Contained inflation and easing interest rates had also helped to underpin the economic upturn, he adds.

The improved outlook provided by the State of the Nation Address and the 2026 Budget, which provided additional policy direction, has now been jeopardised by external shocks arising from the international energy crisis and its wider consequences, Parsons points out.

Further, South Africa's Monetary Policy Committee (MPC), as expected, kept interest rates unchanged at its March meeting in the light of the prevailing global energy crisis. It saw risks to the inflation outlook as being on the upside. Although the MPC kept its growth forecasts unchanged for now, it deemed risks to the outlook as being on the downside.

Several central banks have now pivoted to a wait-and-see or no-change stance on interest rates. Central banks are responding to the Middle East crisis with caution, mostly holding rates steady, while preparing for potential inflation caused by much higher energy prices, he adds.

“It is now likely that South Africa’s economic recovery will be interrupted this year. In acknowledging the extent to which elevated uncertainty permeated the overall economic outlook, it is clear from the MPC’s stance that interest rates will now remain higher for longer for business and consumers,” Parsons says.

The Middle East war and its wider implications have also interrupted, temporarily at least, what may have been a further easing in the PUI.

The energy shock and its concomitant uncertainty have inevitably raised a red flag over South Africa’s economic outlook as a major oil-importing country.

The longer the conflict persists, the worse it will be for fuel prices and the cost of living, especially for poor households and small businesses, which are particularly vulnerable to such price shocks, Parsons points out.

The big spike in fuel prices in South Africa on April 1 also coincides with the implementation of higher State-owned power utility Eskom tariffs, as well as the additional fuel levies announced in the recent Budget, presenting a simultaneous triple increase in terms of costs for businesses and consumers.

“It may have been wise for the National Treasury to consider postponing the introduction of the additional fuel levies and carbon tax on April 1 for a period, such as for three months, to act as a shock absorber for the economy.

“In the present circumstances, economic preparedness and clear communication must enjoy the highest priority in managing the challenges that lie ahead,” he recommends.

When uncertainty is high, policymakers should have three aims, with the first being to make an objective assessment of the risks and likely scenarios.

The second aim must be to evolve and communicate an overall plan or appropriate remedies to mitigate and manage the new risks, while the third aim should be to minimise any uncertainty about the official commitment to the core macroeconomic framework and about the pace of structural reforms, Parsons says.

Faster structural economic reforms must help to build resilience. Presidency-led reform initiative Operation Vulindlela has expedited reforms, but progress remains slow.

Further, investment spending is only gradually turning the corner, according to research institute Bureau for Economic Research, which also adds that sustaining the economic recovery will depend on whether improved sentiment and reform momentum translate into stronger fixed investment and measurable progress in economic performance.

If business in South Africa expect key changes in the country’s economic trajectory, but are very uncertain about what precise form these changes may take, then their confidence will be weak, Parsons says.

To promote policy certainty, strengthen business confidence and build resilience in the current environment, the appropriate overall response is measured preparedness, credible policy direction, coordinated action, speedier structural reforms and good communication, he adds.