South Africa sleepwalking into a recession

The shift in United States trade policy has fuelled global economic uncertainty, heightening fears of a recession and threatening South Africa with slower growth, fewer jobs, weaker wages, and higher living costs.

According to Nedbank, the United States’ trade policy under the second Trump administration has disrupted economic confidence and caused turmoil in global markets.

This was triggered, in particular, by the world’s largest economy imposing, or threatening to impose, high trade tariffs on its trading partners.

“The unpredictability has sparked fears of a potential global economic recession,” Nedbank said. The effects of this will be felt around the world, and South Africa is no exception.

The bank explained that a recession is a significant and widespread downturn in economic activity that typically lasts longer than a few months.

“A common rule of thumb is that two consecutive quarters of shrinkage in aggregate economic output indicate a recession in a national economy,” Nedbank said.

“When these conditions occur in many countries worldwide at the same time, it becomes a global recession.”

Worryingly, even a recession that only lasts for two quarters could leave the economy in a condition that takes years to return to its former peak.

“For example, unemployment – the result of people being retrenched as an economy shrinks during a recession – often remains high well into the economic recovery,” the bank said.

That means that even when the economy enters the early stages of recovery, many people will not feel immediate relief.

Nedbank explained that governments adopt fiscal and monetary policies to prevent a recession from becoming a full-blown economic depression.

“Some of these policies, like unemployment insurance, help address the consequences of a recession after it has started, while others are pre-emptive – like cutting interest rates to stimulate investment that could hold off a recession,” it said.

Cause of the looming recession

Even though there has been no sign of a global economic contraction yet, Nedbank said the United States’ trade tariffs are a significant factor currently stoking fears.

“Tariffs are a tax on imported goods, paid by importers and passed on to buyers, resulting in higher prices on imported goods,” the bank explained.

“They are intended to stimulate investment in local industries to produce goods currently being imported.”

However, because of the country’s latitude, altitude, climate, infrastructure, business costs, and resources, local industries cannot always produce these goods at a competitive price.

“The Trump administration appears to be using tariffs as leverage to secure favourable deals with its trading partners around the world, but the process so far has been neither systematic nor consistent,” the bank said.

“Mounting diplomatic and legal opposition, both in the United States and around the world, has already forced the White House to soften or reverse its stance in several cases.”

However, while the United States may have “paused” or modified many tariff policies, the ongoing uncertainty is still negatively impacting the global economic outlook.

Investment bank JP Morgan recently reduced the estimated probability of a United States and global recession in 2025 from 60% to 40%.

However, it also warned that a period of constrained growth could lie ahead, especially as the United States’ tariff shocks could still influence investor sentiment.

The Organisation of Economic Cooperation and Development (OECD) also shared a concerning outlook about the global economic landscape.

The organisation said the current global trading outlook shows substantial barriers to trade, tighter financial conditions, diminishing confidence, and heightened policy uncertainty.

The OECD estimated this will slow global growth from 3.3% recorded in 2024 to 2.9% in 2025 and 2026.

“The downturn is expected to be most concentrated in the United States, Canada, Mexico and China, with smaller downward adjustments in other economies,” Nedbank noted.

“This is almost entirely due to the economic uncertainty caused by the United States’ trade policy shift and the lack of a clear programme going forward. Uncertainty is now the dominant global economic theme.”

Collective uncertainty means employers are less likely to add workers to their payroll, even if there is demand. This damages the economy’s growth prospects at national and global levels and does nothing to reduce unemployment.

South Africa heads for an economic downturn

Nedbank said that even if South Africa avoids a recession, a tightening of global trading conditions would add another significant hurdle to the country’s already embattled economy.

“The International Monetary Fund’s latest World Economic Outlook reported that our 2025 growth forecast has been cut to just 1%, down from the 1.5% forecast in January,” the bank said.

This is much lower than the 1.9% predicted by the National Treasury during the protracted and contested March Budget Speech.

“In simple terms, this will mean fewer job opportunities, slower wage growth, and a harder time for small businesses to grow or attract investment,” it said.

“If the economy isn’t growing faster than the population, which it currently isn’t, it becomes harder for your family to get ahead – or even stay afloat.”

Nedbank stressed that economists are clear on one point – South Africans, on average, are struggling to make ends meet.

The global market’s interconnected nature means that South Africa is not shielded from the uncertainty that trade wars and tariffs bring, since the country is involved in international trade.

“When big economies slow down, they buy fewer of our exports, invest less in our markets, and often pull back on development loans or aid,” Nedbank explained.

“That can mean higher prices on imported goods, fewer jobs tied to exports, and less money flowing into our economy from abroad.”

Another layer to this is South Africa’s participation in the African Growth and Opportunity Act (AGOA), a trade treaty with the United States that expires in September 2025.

While this may not break South Africa’s domestic economy, Nedbank stressed the importance of the country’s global trading partners.

“At the start of 2025, we had high hopes that our government of national unity might inject some much-needed reform energy into the economy,” the bank said.

“However, local political instability, sluggish policy implementation, and increasingly, global economic volatility, have caused a revision of those expectations.”

Nedbank advised that South Africans should take a cautious personal and business approach to the current economic slowdown, and look to protect their savings, investments, and business assets.