The South African economy and financial markets had to contend with acute domestic and international uncertainty over the past two weeks.
Globally, US President Donald Trump first announced far steeper tariff increases than was widely expected, with a 10% general tariff hike on imports supplemented by significantly higher “reciprocal” tariffs on US imports from many countries. These “reciprocal” tariffs were subsequently, and abruptly, postponed for 90 days. This excludes Chinese imports, on which tariffs were hiked even further, following retaliatory tariffs imposed on Chinese imports from the US. (Several specific tariff hikes imposed earlier also remain in place.)
The unwinding of the extreme “reciprocal” country tariff hikes provides reprieve for many countries, including South Africa, relative to the hikes that were in place on Trump’s “Liberation Day” (when the reciprocal country-specific tariffs were imposed). However, the remaining tariff hikes are still a large shock to global trade.
The prevailing tariff hikes could be equivalent to as much as a 5% average price adjustment on total global trade. At the time of writing, retaliatory measures from the US’s trading partners have been quite limited.
Apart from the direct impact of the tariff hikes themselves, the large and often unexpected tariff adjustments are creating extreme uncertainty, with significant economic and financial market impacts. The IMF estimated last year that the global economic growth impact of trade policy uncertainty could exceed the direct impact of tariff adjustments in a scenario analysis of the estimated impact of a 10% universal US tariff hike with full retaliation from its trading partners.
Our econometric analyses also imply that the associated uncertainty could significantly amplify the economic and financial market impact of such an economic shock. The prevailing tariff hikes and the uncertainty created by US trade policy adjustments will weigh significantly on domestic and global economic growth, sentiment and financial markets.
Domestically, the uncertainty that investors (in financial assets as well as the real economy) face is aggravated by increased concern about the durability of the government of national unity (GNU) in its current form since the budget contention. This comes as general confidence in government’s fiscal and growth-supportive reforms gained traction after the visible results from the earliest reforms, notably in the electricity sector where structural reforms ultimately underpinned the notably improved availability of electricity.
On the fiscal front, the imminent peak in government’s debt-GDP ratio (in fiscal year 2025/26), alongside the increasingly credible expectation that reforms would improve trend growth, improved investor sentiment towards South Africa’s fiscal prognosis.
There is considerable concern among investors about the extent to which any material change in the composition of the GNU would alter the implementation of government reforms to advance shared growth, ensure fiscal sustainability and unwind state capture.
Ongoing commitment to, and traction with, pragmatic domestic policies will have a material bearing on South Africa’s prognosis once we’re through the storm
Our view is that the commitment to broader reforms to improve stronger and shared economic growth, as well as fiscal consolidation should remain intact, unless GNU changes ultimately mean the inclusion of a sizeable populist party that is less enthusiastic about fiscal consolidation and increased private sector participation central to the reform agenda.
As in the case of the tariff hikes, though, the increased uncertainty, even in the absence of political or policy change, will affect the economic and financial market trajectories. A mere delay in the expected private sector fixed investment acceleration could significantly curb economic growth, and any reduction in GDP may be at least partially permanent.
In response to the domestic political and global trade policy developments, we have lowered our forecast for domestic economic growth to just 1.3% this year, from our 1.7% forecast at the start of the year. While we’ve also trimmed our 2026 and 2027 forecasts, we still expect the aforementioned reforms to underpin a sustainable improvement in economic growth to at least 2% in the medium term (premised on our assumption that a significantly more populist composition of the GNU is avoided).
Once the dust settles, these domestic improvements should also underpin material recoveries in the currency and South African bonds, which have significantly underperformed peers during the recent global financial market weakness, predominantly owing to domestic political developments. We attribute around a third of the deterioration in the currency and economic growth forecasts to domestic rather than global developments.
While we can’t escape some of the adverse global developments and uncertainty that are beyond our control, ongoing commitment to, and traction with, pragmatic domestic policies will have a material bearing on South Africa’s prognosis once we’re through the storm.
• Moolman is head of South African macroeconomic research at Standard Bank Group
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