We may be entering a ‘new normal’ as world adjusts to oil price shocks

Economists remain sharply divided about the future direction of oil prices, which, when rising, can be critical drivers of headline inflation.

Forty-four private and public-sector economists are participating in the BMR/Unisa Economist of the Year Competition, making monthly predictions from February to December on key annual or fourth-quarter economic indicators.

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While agreeing on local economic indicators, they are sharply divided on the Brent crude price – with predictions ranging from $65 to $95 per barrel for the fourth quarter. 

The median price forecast for August was $77, slightly up from July’s median of $75.   

Oil prices are significant economic indicators as high oil prices increase fuel, electricity and transport costs, raising headline inflation. 

Rising inflation forces central banks to hold rates higher or raise them further, slowing growth and investment. Lower oil prices reduce inflation. Countries that import oil, like South Africa, face a larger foreign-currency bill, widening the current account deficit and pressuring the currency downward. 

Economist of the Year adjudicator Jacolize Meiring says: “Several participants remain concerned that prolonged Middle East hostilities, potential disruption to oil supplies through the Strait of Hormuz, and local political uncertainty could lift fuel prices, inflation and interest rates.

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“In contrast, a more optimistic group anticipates de-escalation, increased oil production and a stronger rand.”

New normal as world adjusts

Professor Carel van Aardt, project lead of the Economist of the Year Competition, says: “I had actually expected the economists’ figures to be very different – higher oil price predictions and lower GDP rates.

“But the effects of the Middle East war are becoming a ‘new normal’ as the war is not expected to end soon, and economies are actively adapting to this new normal.”

Professor Carel van Aardt from the Bureau of Market Research (BMR). Image: BMR website

The economists’ August predictions matched their July predictions that South African GDP growth will remain unchanged at 1.2% and global GDP growth will stay at 2.8%.

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Van Aardt says economists realise that oil exporters are beginning to adapt and find other export routes, and oil importers are also adapting by seeking new exporters.

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Various economies around the world have begun to adjust.

For example, with rising petrol prices, consumers are moving toward hybrid vehicles, and there has been an uptick in rail usage.

“A pattern that can be observed is that when there is an economic shock, initially there is a crisis phase, then adaptation, giving rise to innovation, which on the one hand mitigates existing economic risks and, on the other hand, creates new opportunities giving rise to business and economic growth,” says Van Aardt.

“An example of this is during the Covid period, where consumers couldn’t readily go shopping, giving rise to on-demand grocery and fast-food deliveries increasing dramatically, which led to strong growth and innovation in online retail.”

Oil prices spiked because of the crisis phase, but now he says the world is in an adaptation and innovation phase as economies adjust.

Economists may be expecting some kind of mitigation from innovation in response to the war, which over the longer term will give rise to increased economic opportunities and growth.

Growth and employment outlook

Predictions for South African economic indicators were in line with estimates made in July.

The economists’ August predictions reveal they believe the prime lending rate will remain at 10.5% in the fourth quarter, suggesting no rate hikes or cuts in the September monetary policy committee meeting. 

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There was no change from their July prediction of 2026 household expenditure growth reaching 1.8%. 

On a negative note, the economists revised their inflation estimate for the year upward by a percentage point, from 4.2% to 4.3%, and expect employment growth in the fourth quarter to weaken further, from 0.6% to 0.5%. 

Source: 2026 BMR/Economist of the Year Competition – August forecast round

The results indicate a highly uncertain forecasting environment, with economists divided not so much on the direction of economic growth locally, but on the scale of the external risks that could influence inflation, oil prices, interest rates and the rand.

Van Aardt also says the August results underline the importance of distinguishing South Africa’s current economic resilience from the much-needed stronger structural recovery.

“The August consensus confirms that South Africa is holding its ground, but the economy remains vulnerable on several fronts.

“Continued structural reform, policy certainty and investment in key growth enablers remain essential if South Africa is to move from resilience towards stronger, more inclusive and job-rich growth.”

Moneyweb is the media partner of the 2026 BMR/Unisa Economist of the Year Competition.

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