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SIMON BROWN: I’m chatting with Aroni Chaudhuri, Coface chief Africa economist. The Coface Risk Review for June 2026 has just come out. There are two points I want to touch on. One is that you’ve downgraded eight countries. No upgrades.
You’ve made 45 changes to sector assessments – 41 down, only four upgrades. This kind of tells the story of where we are as a global economy, and we prefaced before we came on air that things are changing and it could all be different by Monday.
ARONI CHAUDHURI: Good morning. Thank you for having me. Yes, like all economists we know that sometimes our forecasts are not valid for very long. That’s just how it is.
On the bright side, we said in this publication that everything was very unsure and that there was basically no guarantee that the situation in the Middle East would significantly improve over the duration. We were right. But I don’t think that was very hard to forecast.
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Anyway, one thing that we can say – and I think our risk assessments, upgrades and downgrades mirrored that – is that we are convinced that the impact of the conflict in the Middle East is going to be felt in 2026 and 2027 in a durable way.
That’s because in any case, no matter what would have happened or what has happened now, we knew that the duration was long enough for the impacts to be felt.
That’s why our assessment kind of mirrored that, because on the global economy we do expect quite a significant slowdown. We’re at 2.3% in 2026 at market exchange rates.
That’s like around the 0.5 percentage point downgrades relative to before the war and also 2.5% in 2027, which means that we have a medium-term slowdown of the global economy.
So obviously with this shock all countries and all sectors are not going to be affected in the same way or at the same time, because in case of an energy shock, the transmission to inflation and then the impact on consumers and corporates, there will be lags.
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And so that is why we do think that the risk level is going to be worse off during this year and the next, and that is why we are going in this direction.
Obviously we have not excluded the adverse scenario. The market has been very optimistic. We’ve seen that on oil prices. We were not that optimistic, precisely because we thought that the adverse scenario should not be cast aside, because there was and there is a risk that the conflict intensifies. If that will happen or not we will see.
But we do know that perhaps the lull that we were expecting will not be as long as we had expected, or will materialise a bit later. That’s unfortunate, but that’s the reality of the world we live in.
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SIMON BROWN: And it’s exactly what we’ve seen in the last couple of days, with increasing tensions and missile attacks in Iran.
But it also talks to the bigger picture. You mentioned 2026 and 2027. In other words, someone is looking right now and thinking, you know what, ultimately President Trump wants to make peace, ultimately oil prices coming down. But the impact is still going to be felt over the rest of this year and into the next.
I’m thinking inflation. Sure, my fuel price might come down, but some of that has kind of got baked into the numbers for now.
ARONI CHAUDHURI: Yes. As you were saying, yes, the fuel prices might come down, but the transmission of the shock across different portions of the economy – that will not happen immediately. In fact, we can see, because the conflict has re-intensified, the shock is not over yet. We thought it would kind of be a pause; it’s a break, but it’s not over.
So one thing is that, yes, the fuel price will most likely be lower; first of all lower than expected this year unless there is an intensification, and also lower than expected next year. So that obviously means that will have inflation start coming down in 2027, but it’s always with a lag.
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And so consumers will experience higher prices in most economies around the world this year and at the beginning of the next year.
And then we also have to look at the balance sheets – basically of countries, of consumers and of corporates – because one thing is that while disinflationary shock might not be as strong in terms of peak as the one, for instance, that we experienced in Ukraine, we also have to realise that the balance sheets, basically the cash flow of economic engines, are in a much worse position because we have had several years of crises, we have had the tightening of monetary policy.
This means that for companies basically they still have to keep reimbursing debts that were contracted at higher levels. Even in the case of the inflationary shock for some sectors, the pricing power or the margin that they have to increase prices is not that high, because demand is still low.
So that means while the shock might be less important – like on a very absolute basis – the room to absorb the shock is actually lower.
That is also true about countries, because the fiscal space of most countries has been eroded because of all the intervention that was needed during the pandemic, after the war in Ukraine, during the monetary tightening – and also because, well, countries have been basically spending too much in the past two decades.
That means that there’s also less room to intervene and to support the economy as required.
This is also true of consumers. We’re seeing in some advanced economies that, first of all, consumers are wary of the future because everything is very chaotic and uncertain, so they tend to save more, consume less.
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And so those impacts, and the effect they will have on the economy in the broader sense – on insolvencies for instance, on the capacity to contract debt – will actually materialise later.
And that is why we’re saying that even in 2027, while the immediate impact of the shock might be absorbed, balance sheets basically will still not be under pressure.
SIMON BROWN: That’s a great point. I hadn’t thought about that. And even, just at a consumer level, that balance sheet.
As a last question, to bring it back to South Africa and particularly the GDP, maybe we were naïve. But as a country we came into 2026 with a fair bit of hope and optimism, particularly around our GDP. To be clear, not the three, four, 5% we really need, but maybe a 1.8%, maybe a 2%.
You’ve come out with your forecast at 0.84% for this year and 1% for next year. We’re in an economy that remains, frankly, stuck in a zero-growth environment.
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ARONI CHAUDHURI: Yes. That has been real for the South African economy for decades. And yes, we were expecting – and I was also expecting – some momentum before the crisis. But the issue with South Africa is, first of all, it’s an emerging economy. It’s the most developed on the continent.
So basically when you have an energy shock, it is actually relatively more effective than in less developed countries, because industries do depend on oil. Transport, all of the exporting industries, commodities, agriculture – these are all dependent industries.
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So while there have been no immediate supply disruptions, or not very large ones, the price effect still materialises. And when you look, obviously the Q1 GDP figures should be taken with caveats, because that’s before the beginning of the crisis.
The Q1 figures were actually not that bad.
But basically the trends that we have seen in the past quarters do still continue to materialise, which is that basically South African growth is driven mostly by services – a bit by agriculture also.
We were expecting that because the rains had been very good in the El Niña period, but on the industrial side basically manufacturing and mining are still stuck with very low demand.
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And so that will continue into this year, except if we have an increase in inflation because the service sector was driven by good consumption as inflation had been very low. That’s why the target was changed. So now with a bit more inflation, you have a bit less consumption.
But that is also why we are at this stagnant level in the sense that the shock has not highly distorted the growth outlook. My forecast was actually not that high, even before the shock, because I had this under consideration. But it’s not an extremely recessionary shock as well.
I would add that below 1% growth basically means that on average the country is continuing to get poorer, because the population growth rate exceeds 1.7%. That is the main issue.
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I will say that on the bright side though, you had the removal from the FATF grey list, the fiscal situation has improved a bit, the energy system is now more stable.
And so one can only hope that, if the reforms continue despite this shock now, it will be slightly later, but maybe at the end of 2027 or 2028 we’ll have a slightly stronger momentum.
But that is the thing. The economic policies that have been implemented, which were good in the past years, have to be continued despite this shock, because that’s what will grip the drive.
South Africa’s economy has been resilient to shocks, but the resilience is also part of why it stagnates. It is because there’s a big distortion into the growth engines, the growth drivers, and so some portions of the economy continue to perform if you have big financial sectors; financial flows in this crisis have been very, very large. There have been a lot of transactions.
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Markets have generally held quite well, so that kind of shows where the pockets of growth are. And the problem in South Africa is that the pockets of growth are not sufficient to have a stronger growth rate.
SIMON BROWN: Yes. I like your point, we need to hold the line on those reforms, regardless of what’s happening. It is tough, but we need to continue doing the right thing and not necessarily the popular thing.
We’ll leave it there. Aroni Chaudhuri, Coface chief Africa economist, I always appreciate the insights.