South African Economy Hit by Global Turmoil, but Brighter Days May Lie Ahead

South Africa’s economy showed signs of strain in April 2025, with the latest BankservAfrica Economic Transaction Index (BETI) revealing a dip to its lowest level this year. The index dropped to 136.4 in April, down from 137.2 in March, reflecting a 0.6% monthly decline.

While still 1.5% higher year-on-year, the slump underscores the chilling effect of recent global events—particularly the announcement of new U.S. punitive import tariffs that sparked fears of a trade war. The result has been heightened market volatility, falling investor confidence, and downward revisions to global and local growth forecasts.

“Confidence levels across the globe and in South Africa have been knocked by the sheer uncertainty that these developments brought on,” said BankservAfrica.

Independent economist Elize Kruger warned that rising uncertainty is deterring investment and consumer spending. “Low confidence is a serious drag on economic activity,” she said, noting that the South African GDP growth forecast for 2025 has already been revised down by 0.5 percentage points.

Mixed Signals from Key Indicators

While the overall picture appears gloomy, there are signs of resilience. The S&P Global South Africa Purchasing Managers’ Index rose to 50.0 in April—breaking four months of contraction. However, the Absa PMI remained in negative territory for the sixth straight month.

On the manufacturing front, Stats SA confirmed the sector has slipped into a technical recession, with two consecutive quarterly contractions.

Despite this, the vehicle sales market continues to shine. According to Naamsa, April saw continued strength, raising hopes that full-year sales in 2025 could finally return to pre-COVID-19 levels. This is partly due to falling inflation and interest rates, which are improving household finances.

Global Trade Tensions, Local Headwinds

The U.S.-led tariff hikes have cast a long shadow on global trade, threatening demand and commodity prices. Yet, South African mining exports may dodge the worst of the damage, as many key commodities remain exempt from these new tariffs.

Meanwhile, lower oil prices are softening inflation pressures, and rising gold prices could help offset some export losses.

April also marked a shift in tone, with promising signals emerging toward month-end. These included early signs of de-escalation in the trade conflict and momentum in strategic sectors like renewable energy, financial services, and automotive manufacturing.

Hope on the Horizon

Kruger is optimistic that South Africa’s economy may regain momentum in the second half of the year, supported by structural reforms such as Phase 2 of Operation Vulindlela—the government’s renewed push to unlock economic growth. *digitis | Digital marketing for your business

In April, BankservAfrica processed 167.9 million transactions—down from March’s record 172.4 million, but still 7% higher than a year ago. The value of transactions eased to R1.320 trillion, while the average value per transaction declined to R7,482.

With inflation at just 2.7%, well below the Reserve Bank’s 3–6% target range, many believe there’s ample room for interest rate cuts. Real interest rates remain unnecessarily punitive, Kruger argued, with the current real repo rate sitting at 4.3%—far above the neutral 2.7%.

Rebound Potential in 2025

The rand has also recovered from earlier losses, trading stronger thanks to a softening U.S. dollar. On the domestic front, real salary growth—driven by inflation-busting wage hikes—should help support consumer spending through the rest of the year.

“With average salary increases expected between 5% and 6%, 2025 will be the second consecutive year of real income growth,” said Kruger.

As South Africa navigates a challenging global landscape, the country’s economy is showing signs of both vulnerability and resilience. And if current trends hold, 2025 could still turn out to be a year of cautious recovery and renewed optimism.

{Source: BusinessTech}

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