Dark clouds gather for South Africa’s economy

The International Monetary Fund (IMF) has cut its economic growth forecast for South Africa to just 1%, as US President Trump’s tariffs wreak havoc on financial markets. 

Before Trump’s tariff announcement on April 2, there were hopes that Eskom’s improved performance and the Government of National Unity (GNU) could elevate economic growth above 2% in South Africa. 

However, the IMF said that the economic shock stemming from the tariffs has led to downward revisions for almost all countries. 

This was all revealed in the IMF’s April update to its World Economic Forecast on Tuesday, 22 April, its first such update since Trump’s tariffs were announced. 

The IMF explained that despite Trump walking back his tariffs slightly with a 90-day pause on higher reciprocal tariffs, they still pose a significant threat to global trade and growth. 

An across-the-board tariff of 10% on all goods imported into the US remains in effect and will significantly impact global trade. 

The institution was at pains to explain that these forecasts are just ‘reference forecasts’ due to the complexity and uncertainty of the moment. 

The reference forecasts assume the tariffs imposed by the US and countermeasures by some of its trading partners as of April 4 will remain in effect.

“The global economic system under which most countries have operated for the last 80 years is being reset, ushering the world into a new era,” IMF head of research Pierre-Olivier Gourinchas said. 

“If sustained, this abrupt increase in tariffs and attendant uncertainty will significantly slow global growth.”

The new forecasts in the IMF’s outlook were 0.5 percentage points lower for both South Africa and the global economy compared to the January forecasts. 

The IMF said the downward revision for South Africa reflected slowing momentum from a weaker-than-expected 2024 output.  

It also showed the effects of deteriorating sentiment due to heightened uncertainty, the intensification of protectionist policies and a deeper slowdown in major economies. 

Faltering recovery

The IMF is not the only institution to revise its economic growth forecasts for South Africa downwards, with the Reserve Bank doing so at its most recent Monetary Policy Committee (MPC) meeting. 

It revised its outlook for South Africa’s economic growth in 2025 from 1.8% to 1.7%, signaling that the economy’s bounce back faces an uphill battle. 

In its statement, the MPC said that there are downside risks to South Africa’s economic growth, meaning that growth may be revised lower again in the future. 

The main driver of the increased likelihood of changes to this outlook is the rising volatility in the United States. 

“The world is experiencing extreme levels of uncertainty. Trade tensions have escalated, and longstanding geopolitical relationships are shifting abruptly,” Reserve Bank Governor Lesetja Kganyago said.

In South Africa, economic growth picked up in the fourth quarter of 2024 as household spending recovered and agricultural production bounced back.

“That said, the overall growth picture was disappointing, with other sectors showing weakness. Growth for 2024 as a whole was 0.6%, marginally below our expectations and slightly worse than in 2023.”

“We have now revised down our 2025 growth forecast slightly, to 1.7%, while leaving the outer years unchanged.” 

“We attribute lower growth partly to subdued demand and partly to lingering supply-side fragilities. We assess that the risks to growth are to the downside,” the MPC said in the statement.

The IMF’s sister institution, the World Bank, revealed a two-step plan to revive South Africa’s economy earlier this year. 

In the World Bank’s Driving Inclusive Growth in South Africa report, released in mid-February, the bank said the country desperately needed to increase market competition and make institutions more efficient. 

“Today, many of South Africa’s markets lack dynamism. Firm entry and exit are a third of the average of a typical middle-income country,” the lender said. 

This is one of the major driving factors behind the country’s high unemployment rate, with South Africans unable to find stable and productive jobs.

The World Bank said the burden of institutions has become excessive – not only for businesses and citizens but also for public administration. 

South African policymakers have attempted, often with good intentions, to correct market or historical failures by intervening through hard regulations, such as Black Empowerment policies, local content, and collective labour bargaining. 

Today, these interventions have become so cumbersome that they smother the implementation capacity of the public administration, especially local officials, and open spaces for corruption.