Treasury lowers growth forecast with eye on protectionism

While tariffs have not risen as sharply as anticipated, National Treasury warns that the delayed effects of rising trade barriers, growing protectionism and persistent supply chain disruptions may increase costs, dampen productivity and weigh on medium-term global and domestic growth.

This outlook is contained in the 2025 medium-term budget policy statement (MTBPS), tabled in parliament on Wednesday.

Treasury has revised its growth forecast for 2025 down to 1.2%, from 1.4% projected in the May budget — a downgrade that prior forecasts attributed to shrinking fixed investment and lower exports in the first half of the year.

Real GDP growth is expected to improve modestly to 1.5% in 2026, 1.8% in 2027 and 2% in 2028.

To assess potential risks and opportunities facing the economy, the Treasury developed three alternative scenarios to its baseline forecast.

The global downside scenario models the implications of higher tariffs. In such a setting, fragmented supply chains and rising protectionism weigh on global demand, constraining trade volumes.

Treasury explains that under this scenario SA is affected by lower global demand, falling commodity prices and increased uncertainty reflected in financial markets. “The exchange rate weakens while borrowing costs increase in response to greater uncertainty, undermining the fiscal position,” Treasury said.

While inflation remains slightly below baseline in the near term due to subdued oil prices, the overall impact is negative: GDP is projected to be 0.6 percentage points below baseline by 2028, widening to one percentage point below baseline by 2033.

The global upside scenario models the impact of a permanent return to lower effective tariffs. According to the Treasury, normalised trade policies would support global demand, stimulate trade and reduce uncertainty. “SA benefits from improved demand and rising commodity prices. The risk premium and borrowing costs decline in response to reduced uncertainty and a stronger exchange rate. Near-term inflation remains slightly above baseline due to improved oil prices.”

GDP is therefore projected to be 0.3% above baseline by 2028, improving gradually to 0.5% by 2033.

The domestic upside scenario envisions effective ramping up of infrastructure investment and enhanced efficiency within state-owned entities. It assumes faster implementation of Operation Vulindlela reforms, alongside increased private sector participation in strategic sectors such as energy, transport, water and logistics.

According to the Treasury, “productive capacity improves alongside business and investor confidence, supporting a further reduction in the sovereign risk premium”.

It said: “Growing fixed investment raises capital stock accumulation and productivity and lifts potential growth, supporting increased trade volumes. Near-term consumer demand improves, supporting a modest uptick in inflation, after which consumer inflation returns to target more quickly.”

This means GDP rises 1.4% above baseline by 2028, improving gradually to 1.8% by 2033.

Raising the growth trajectory depends on “continuing to strengthen macroeconomic stability, accelerating structural reforms, building a capable state and improving public sector infrastructure investment”, Treasury said, adding the importance of continued efforts to improve policy certainty, deal decisively with economic blockages and bolster capacity in infrastructure and service delivery.