Big banks slash expectations for South Africa

Economists from South Africa’s top banks have downgraded their GDP growth estimates for 2025, with increased domestic taxes and high tariffs from the United States hurting the nation.

South Africa has faced a week for the history books, with US President Donald Trump implementing a 30% ‘reciprocal’ tariff on South Africa, claiming that South Africa places a 60% tariff on US goods.

The US President’s tariff is based on the United States’ trade imbalance with South Africa, not the tariffs that South Africa imposes on US goods, which are roughly 7.5%.

Moreover, the tariffs mean that the African Growth and Opportunity Act (AGOA)—which gives South Africa duty-free access to the American market—is dead in the water,

The USA is one of South Africa’s largest trading partners, and the new tariffs are set to impact the economy severely.

Locally, tensions within the Government of National Unity (GNU) have also increased, with the DA and FF Plus rejecting the 2025 Budget, which included a one percentage point increase in VAT.

The DA’s refusal to support the Budget has cast doubt on its continued involvement in the GNU.

The DA’s business-friendly approach has been seen as a positive by markets, and a scuppering of the alliance would likely have an adverse effect on sentiment and investment.

Moreover, the increase in VAT and personal income tax bracket creep are expected to add further strain on already cash-strapped households, even if National Treasury is supposedly looking at alternatives.

These local and domestic developments do not bode well for South Africa, which had just looked set to exit a period of economic malaise.

South Africa’s GDP only grew by 0.7% in 2023 and 2024.

The numbers are lacklustre at best and do not keep up with population growth of 1.5%. In real terms, South Africans are getting poorer per capita.

However, that South Africa experiences growth at all is something of a miracle, given the intense levels of load shedding in 2023 and the election uncertainty in 2024.

Prospects for 2025 started out well, with many economists and analysts seeing growth between 1.5% and 2.0% and the Presidency chasing growth of over 3% based on the government’s reforms.

National Treasury sees growth of 1.9%, which should be enough to ensure that South Africa’s population get ‘richer.’

However, following the week of hard knocks, these targets are now seen as over-optimistic and unrealistic, with major banks slashing their forecasts.

FNB: 1.6% (-0.1pt)

FNB’s economists have adjusted their macroeconomic projections to include the anticipated impact of the proposed VAT increase, fiscal drag and the expected decline in consumer confidence.

They have also assessed the implications of the ongoing United States (US) trade policy recalibration and the potential exclusion from the African Growth and Opportunity Act (AGOA).

Looking at local politics, the group does not foresee changes in the political landscape that would alter its baseline view on economic reforms.

That said, the situation remains complex, and the probability of an accelerated reform scenario is low.

Despite remaining cautiously optimistic about the economy’s recovery, FNB’s economists have revised their real GDP growth projections slightly downward.

“This reflects a weaker external environment, increased household tax burdens, and subdued consumer sentiment,” said FNB.

“The anticipated rebound in fixed investment, following a 3.7% contraction last year, is expected to be constrained by continued policy uncertainty.”

Real GDP growth has thus been revised down by 0.1ppt, with projected growth now at 1.6% for 2025, 1.7% for 2026 and 2.0% for 2027.

Bank of America: 1.4% (-0.2pts)

Bank of America has downgraded its GDP growth forecast for 2025 from 1.6% to 1.4%, a forecast worse than FNB’s.

Bank of America is the second-largest bank in the world. It operates in South Africa, but mainly offers research and customer support services instead of a retail bank offering.

Bank of America’s Chief Africa Economist, Tatonga Rusike, said that the drop is due to slower-than-expected economic reforms, slow global growth and global uncertainty.

Rusike said South Africa’s growth prospects are at risk due to the uncertainty surrounding the GNU after the DA refused to back the ANC’s 2025 Budget.

Although the DA could exit the GNU, Rusike said that this would not result in a complete breakdown of the GNU, with smaller parties joining the GNU and acting as kingmakers.

Nevertheless, Rusike said GDP growth is on an upward trend following two years of sub-1% growth. Growth is seen at more than 1.5% over the medium term.

Investec: 1.3% (-0.5pts)

Investec have also lowered its GDP expectation for South Africa from 1.8% to 1.3%, the worst of all three banks and based on the escalation of a global trade war and the loss of AGOA.

Investec Chief Economist Annabel Bishop said that the 30% tariff introduced on South Africa by the US and the expected loss of AGOA benefits will severely impact South Africa’s vehicle and agriculture exports.

Bishop said that the uneven tariff impositions will mean that the demand for South African goods will be lost.

Bishop said that the recent political tensions over the Budget and the stability of the GNU have negatively affected the rand.

However, Bishop believes that the DA is likely to continue to wish to remain in South Africa’s coalition government.