The local economy is set for modest growth amid concerns about the likely effects of incoming US President Donald Trump on global trade, according to economists.
This relatively optimistic outlook sets the tone for the year, emphasising South Africa’s potential to outpace its 2024 economic performance despite big domestic and international challenges.
Andre Cilliers, currency strategist at TreasuryONE, warned that “Trump’s election and anticipated tariffs have heightened trade tensions, with expectations for significant global policy changes”.
Bloomberg Economics forecasts a modest drop of 72 basis points in developed economies’ interest rates for 2025 — less than in 2024 — a sign of caution reflecting inflation and geopolitical uncertainty.
This global environment has introduced risks, particularly for trade-dependent economies such as South Africa's.
Weak job creation and business closures reflect structural challenges South Africa must address to stabilise its economy
— Andre Cilliers, TreasuryONE
“Trump’s tariff plans could disrupt global trade, affecting South Africa’s export competitiveness,” Cilliers said.
That view is shared by Elna Moolman, Standard Bank group head of South African macroeconomic research.
“Unfortunately, the growth in South Africa’s export destinations, as well as South Africa’s terms of trade (prices of exports relative to imports), is likely to drift sideways, with the global economic prognosis mired in risks ranging from global policy uncertainty to ongoing geopolitical tension,” she said.
Yet, domestic factors such as policy reforms and monetary easing offer hope for the economy.
“Still, South Africa is likely to be one of the few countries with stronger growth than last year,” Moolman said.
“Stronger economic growth should also support the fiscal prognosis (via stronger tax receipts), which should further allay investors’ persistent concerns about risks to the government’s intended fiscal consolidation.”
She said that may also underpin sovereign credit rating improvements in due course, “as already signalled by S&P Global’s revision of its ratings outlook on South Africa to positive from neutral”.
Ongoing traction with growth-supportive policy reforms, including the interventions by Operation Vulindlela, should provide further support for economic recovery, Moolman added.
“Domestic inflation pressure has thus far remained quite tame, and the [Reserve Bank] is likely to cut the repo rate to its estimated neutral level (the level at which it neither constrains nor boosts the economy),” she said, adding that even a shallow interest rate reduction cycle could act as a tailwind for the economy and consumers.
According to Cilliers, the Reserve Bank remains conservative, “with only two rate cuts expected in 2025 to balance inflation risks against the weak [rand]”.
However, structural impediments such as municipal failures and labour market challenges could undermine economic prospects, he said.
Cilliers pointed to “poor service delivery and decaying infrastructure at the local level” as major growth constraints.
Those issues not only deter private investment but also worsen existing inequalities and economic inefficiencies.
Labour market concerns remain another critical barrier. “Weak job creation and business closures reflect structural challenges South Africa must address to stabilise its economy,” Cilliers said.
He said these dynamics increased pressure on President Cyril Ramaphosa’s administration to implement meaningful reforms, attract private sector capital and broaden the tax base, and address these factors in the coming state of the nation address (Sona) and budget. The Sona is scheduled for February 6.
Investors will also closely monitor assessments from the Financial Action Task Force as South Africa works to exit its greylist, Moolman said.
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.