South African business confidence slumped in the second quarter of 2026 after two consecutive quarters of gains, as the operating environment deteriorated in the face of persistent Middle East tensions that have pushed oil prices up.The Bureau for Economic Research (BER) and Rand Merchant Bank (RMB) business confidence index (BCI) fell eight points to 39 in the second quarter, with the deterioration being broad-based across sectors though the sharpest pullback came from those most exposed to shifts in household spending, financing conditions and fuel costs.Quarterly stats. (Karen Moolman) The survey took place from May 14 to 25, when the operating environment for firms worsened significantly from the first quarter, before the war between the US and Iran broke out.The spike in oil and fuel prices has contributed to a marked shift in the domestic interest-rate outlook, from expectations of further monetary policy easing this year to anticipations of rate increases to try to contain inflation.Announcing a 25 basis-point increase in the key policy rate to 7% last Thursday, South African Reserve Bank governor Lesetja Kganyago said the challenge of large and overlapping shocks from the steep fuel price increase was likely to trigger second-round effects, requiring a policy response. “The decline in business confidence during the second quarter is disappointing, particularly after the encouraging improvement recorded over the preceding two quarters. However, the setback is not unexpected given the sudden deterioration in the global environment, even though there was no material weakening in South Africa’s domestic fundamentals,” RMB chief economist Isaah Mhlanga said in the BCI report.“Businesses have had to adjust quickly to a less supportive outlook, which weighed on sentiment across most sectors.”Four of the five sectors that make up the headline index recorded lower confidence, the largest decline being recorded among new vehicle dealers, wholesalers, retailers and building contractor confidence.Manufacturing was the only sector to record an improvement — though it ticked up by just one point and the level remains low and consistent with ongoing demand weakness.New vehicle dealers remained the most confident sector despite the sharp decline in sentiment from the elevated level reached in the first quarter. The deterioration in confidence was concentrated in Gauteng and KwaZulu-Natal, but the Western Cape saw a five-point increase, making it the only major province to record an improvement.Overall, confidence remains broadly in line with its long-term average and above the lows recorded in recent years.“While the external shock has interrupted the recovery in sentiment, it has not necessarily derailed it, Much will depend on whether geopolitical tensions ease and whether domestic reform momentum can continue to support growth and investment,” Mhlanga said.When respondents were asked about the positives and negatives in their sectors in the survey, fuel costs were the recurring theme, BER chief economist Lisette IJssel de Schepper told an annual conference of the research institution in Johannesburg on Tuesday.“One-third of all comments referred directly to fuel and energy costs, which is something that we don’t usually see. Input, raw material prices, plastic derivatives, polymer, things like that are already increasing at a very rapid rate,” she said.“There’s also the realisation that they are not only under pressure, the consumer is also under pressure, so they’re worried about future demand as well.”