Another disaster for South Africa enters view

Economists believe the South African government is grossly overestimating growth prospects for 2025, warning that a global and local recession could do untold damage.

Tabling the 2025 budget in March, Finance Minister Enoch Godongwana put his estimates of GDP growth for the year at 1.9%.

Even among the most bullish economists, this was, at the time, on the high-end of estimates, with most seeing growth around 1.6%.

This was, of course, before US President Donald Trump launched a global tariff war, imposing a 10% tariff minimum on all countries, and far higher for those that have “excessive” trade surpluses with the States.

With tariffs ranging from 10% to 50%—and then as high as 125% when Trump took on China directly—global markets were shaken, leading large financial groups to underline a US recession in their forward projections.

Having found some semblance of root in the White House, these warnings reportedly led to Trump hitting pause on the tariffs on Wednesday night.

The US president announced that all tariffs above 10% would be paused for 90 days—except for China, which was slapped with the aforementioned 125% rate.

Critically, the 10% tariff remains in effect, as does the more targeted 25% tariff on all vehicle exports.

While this was enough for big banks to walk back from having a US recession as a certainty, global anxieties over the tariffs remain, along with the impact they will have on global economic growth.

Economists have not predicted a recession for South Africa in 2025, but this is small consolation when GDP growth is already anaemic and not beating population growth.

GDP growth in 2023—wiped away by the worst levels of load shedding on record—scraped by with a surprising 0.6%. Despite some strong recovery in sentiment, 2024 did not fare any better, coming in at 0.7%.

While hopes were for a much stronger showing in 2025—and president Cyril Ramaphosa aiming for a lofty 3%—it does not look like it will be that much better.

According to Efficient Group chief economist Dawie Roodt, “If we get 1% we will be lucky”. Most banks and economists have slashed their outlooks to between 1% and 1.5%, with risks to the downside.

Even with no recession expected in South Africa, if one hits the United States and wider global market, the impact on the fragile local economy would be profoundly negative.

How a recession would hit South Africa

Aluma Capital chief economist Frederick Mitchell said that a looming global recession, coupled with South Africa’s fragile fiscal state, presents significant threats to employment, trade dynamics, and government finances in 2025.

For employment, a recession generally leads to decreased consumer spending, causing businesses to cut costs, often through layoffs or hiring freezes.

“In South Africa, where unemployment rates are already high, an economic downturn could further exacerbate these figures,” Mitchell said.

With many sectors, including tourism, manufacturing, and services reliant on domestic and international trade, job losses are likely.

As has already been widely laid out, the impact of the Trump Tariffs—even at 10%—is bad news for the economy.

Tariffs on South African exports to the US will increase costs and reduce competitiveness, while the trade war between the US and China could potentially drive-up prices for imported goods.

South African consumers will pay the price and face higher costs for foreign products, Mitchell said.

“South Africa would likely see a contraction in both exports and imports, directly affecting economic growth rates in the short-to-medium term,” he said.

Perhaps the most detrimental impact would be how all of these drawbacks impact government finances, which are already extremely tight.

Mitchell noted that with R424.9 billion earmarked for debt servicing in the 2025/26 fiscal year and projected to grow by 7.1% annually, the government’s fiscal space would further constrict.

“Any downturn would likely escalate the difficulty of managing existing debts and the repayment of these debts in future,” he said.

Economic slowdowns generally lead to lower income and value-added tax collection due to reduced corporate profits and household incomes.

As businesses struggle and unemployment rises, tax revenues may fall short of projections, exacerbating the deficit.

This in turn gives the government much less money to work with, putting pressure on key spending items, like social programmes.

“With approximately 61% of government expenditure devoted to social grants, healthcare, education, and housing, a recession could necessitate a re-evaluation of these budgetary allocations,” the economist said.

“The government may be forced to cut back on social spending at a time when it is needed most, potentially leading to increased social tensions and even unrest in some cases.”