Despite a hellish week of fresh US tariffs and the government of national unity (GNU) ructions rocking the markets, finance minister Enoch Godongwana is not budging from his positive economic outlook, which forecasts real economic growth at 1.9% in 2025, and 1.8% in the two outer years.
US President Donald Trump announced 31% “reciprocal” tariffs on South African imports, with the White House erroneously claiming that US goods entering South Africa were subjected to average tariffs of 60%.
This sparked a huge sell-off on the JSE, with the all share index plummeting 4% overnight and wiping out almost R1-trillion in value. The rand also weakened, breaching the R19/$ mark on Friday.
Squabbles in the GNU have added to the uncertainty. The DA has gone to court to challenge the passing of the budget on Wednesday and the adoption of the fiscal framework which sets caps on government spending and legislates changes in taxation.
This has stoked speculation that the DA might exit the GNU, which has for the most part been considered investor-friendly. South African equities had rallied on the formation of the coalition, and the economy attracted billions in bond inflows since the power-sharing agreement anchored by the ANC and DA was announced.
Speaking in the National Assembly on Thursday, Godongwana said the National Treasury was sticking to its macroeconomic forecast and GDP outlook despite the latest developments over tariffs and the risk of the GNU collapsing.
“The Treasury does not consider its baseline overoptimistic. The macroeconomic forecast published by the Treasury is the best estimate based on the information and data available at the time of the update.”
Independent studies had shown that the Treasury's forecast errors have significantly reduced in recent years, Godongwana said.
“By conducting peer assessment, these studies further confirmed that forecasts produced by the Treasury exhibit no institution-specific bias. Moreover, the Treasury’s growth forecast performed in line with, and at times better than, those of other professional forecasters, forming a credible base for fiscal planning.”
His budget review includes an optimistic scenario in which structural reforms raise investor confidence and reduce the sovereign risk premium, leading growth to a high of 2.7% in 2025. In scenario B increased trade fragmentation, continued constraints and inflation put growth at 1.5%.
However, the chief investment officer of Prescient Investment Management, Bastian Teichgreeber, told Business Times the combination of the tariff announcement and the uncertainty presented by GNU infighting over the budget would have “a bad effect” on the market.
“You can see the rand is more than 3% weaker. The bond yields are spiking, and that obviously has an impact on how the Reserve Bank conducts monetary policy because it is its mandate to look after price stability and the currency.
As things stand, I can’t see how the economy is going to grow much faster than 1% this year.
— Dawie Roodt, efficient Group economist
“As things stand now, I can’t see how the economy is going to grow much faster than 1% this year. The minister of finance got close to 2% in his budget. So the whole medium-term expenditure framework is probably not that accurate any more and it will have to be redone,” said Teichgreeber.
The National Assembly’s chaotic passing of the budget did little to ease tensions. If those pressures and instabilities endure for a while, South Africa can expect interest rates to stay “higher for a bit longer”.
Efficient Group economist Dawie Roodt said he believed Godongwana was far too optimistic in his economic growth estimates and his medium-term outlook for South Africa. He said the Treasury would have to revise these downwards.
“Clearly, [the negative market reaction] is not about a 0.5 percentage point increase in VAT. Because that is actually a small change. It’s more about the tension within the GNU. That is the main issue and the reason the financial markets reacted the way they did,” Roodt said.
Prof Raymond Parsons of the North-West University School of Business said the jury was still out on the extent to which the combination of further US tariffs and the budget decisions would worsen economic uncertainty.
“As the business mood and the markets responded positively to the formation of the GNU nine months ago, it is inevitable now that there has been a negative reaction to the possibility that the GNU may not survive in its current form.
“While this may not make much difference to the basic direction of present economic policy, it may prevent the strategic pivot in growth policy that is urgently needed to get higher investment and job-rich growth. Capital investment is the kingpin of growth. Investor confidence is likely to weaken if there is political instability,” Parsons said.
DA leader and agriculture minister John Steenhuisen said while his department was working hard to salvage the country’s relationship with the US and the duty-free trade agreement (under Agoa), he urged farmers to prepare themselves for a post-Agoa world.
Commenting on the ructions in the GNU, Steenhuisen said the DA had joined the coalition to grow the economy and create jobs and such political tie-ups were meant to be based on genuine power-sharing agreements in which all parties had a meaningful role in economic policy and direction. He warned the ANC that striking an agreement over the budget with parties outside the coalition was already rattling markets.
“I think the ANC should take note of the market’s reaction to their efforts to go outside the GNU to make deals.”
Briefing journalists on Friday, trade, industry & competition minister Parks Tau said while the US tariffs would effectively nullify Agoa, the Trump government was still holding an Agoa forum in July, which South Africa planned to attend to call for the extension of the trade pact beyond September. He said South Africa would not impose reciprocal tariffs.
“I think that [without understanding the reasoning behind the tariffs] it would be ill-considered to just make a decision to impose reciprocal tariffs. In any case, we are going to engage the US and our commitment is to engage meaningfully until we find solutions.”
At the same briefing, international relations and co-operation minister Ronald Lamola said the government would seek clarity from the US over the 31% tariff imposition on South African exports, which would hit the motor and motor component industry hard, as well as citrus and wine exports. He said the White House had erred in claiming SA imposed 60% tariffs on US imports as the average tariff was just 7.6%.
Total South African exports to the US were $14.3bn in 2024. However, key exports such as platinum group metals, gold, copper, zinc, manganese, coal, fertilisers and chemicals were excluded from the 31% tariffs kicking in this week.
Trade and Industrial Policy Strategies executive director Saul Levin said the US tariff made no economic sense as it was six times higher than the weighted average tariff South Africa imposed on US imports.
“Furthermore, it exempts platinum, titanium and other raw materials that account for a third of South African exports to the US. These minerals exports are responsible, however, for the trade surplus with the US.”
Asked if the tariffs would yield benefits for the US economy, Levin said: “There is a risk these measures will trigger a recession in the US. They will likely dramatically reduce global trade; both will have negative outcomes for South Africa.”
Business Unity South Africa director for economic and fiscal policy Lunga Maloyi said the introduction of the tariffs could lead to a contraction in exports, potentially resulting in a decrease of up to $4bn (about R72bn) over the next two years.
“This decline would not only affect the balance of trade but could also slow down economic growth, as these industries are key contributors to our GDP. Industries such as automotive manufacturing and agriculture are significant employers in South Africa.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.