The South African Reserve Bank (SARB) has cautioned that the country’s economy could face a contraction of 0.69% this year if adverse global and local conditions converge. This would mark a significant deviation from the 1.7% growth currently projected.
In its latest Monetary Policy Review, the central bank raised concerns over escalating global trade tensions, particularly the recent tariffs announced by U.S. President Donald Trump. If fully implemented, these tariffs could threaten South Africa’s continued access to the African Growth and Opportunity Act (AGOA), a preferential trade agreement that supports exports to the United States.
The SARB has modelled a scenario where a 15% depreciation in the rand and the full impact of trade restrictions would combine to drag GDP into negative territory. This would reverse the moderate recovery expected this year following sluggish growth of just 0.6% in 2023.
The local currency experienced heightened volatility after the U.S. imposed a 30% tariff on South African exports, coinciding with what was referred to as “Liberation Day” on April 2. The rand briefly touched R20 to the dollar, its weakest point since June 2023, before recovering to trade just below the R19.50 range. It has since stabilised further, moving below the R19 mark.
Market analysts suggest that the rand could strengthen to levels between R16 and R17 over the long term, with a stronger recovery to the R15-R16 range seen as less likely, though still within the realm of possibility. The rand has now returned to levels last seen in early 2024, when it ranged between R17 and R18.
Domestic political uncertainty, particularly within the Government of National Unity, has also played a significant role in recent currency instability, reportedly accounting for the majority of its recent fluctuations.
While the initial tariff shock was somewhat eased by a temporary 90-day global reprieve—reducing most duties to 10%—certain sectors, including the local automotive industry, have already been affected by the new trade barriers. The SARB considers such measures disruptive to global supply chains, investment flows, and consumption, with the potential to limit access to key markets and stall economic momentum.
South Africa’s economic growth has been on a downward trajectory since its strong post-pandemic recovery in 2021, which saw GDP expand by 5%. Growth slowed to 1.9% in 2022 and fell further to just 0.7% in 2023, before reaching 0.6% last year.
This deceleration is largely attributed to the persistent underperformance of state-owned network industries, compounded by ongoing load shedding and logistics challenges. These issues have undermined business productivity, constrained the economy’s potential growth rate, and weakened South Africa’s competitiveness in global markets.
To support sustainable growth, the SARB recommends structural reforms that focus on reducing inflationary pressures and enhancing the country’s overall economic competitiveness.
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