SARB Warns Trump’s Tariffs Could Shrink South Africa’s Economy by 0.69%

The South African Reserve Bank (SARB) has sounded the alarm over potential economic fallout from new trade tariffs imposed by United States President Donald Trump. According to its latest Monetary Policy Review, South Africa’s economy could contract by 0.69% this year in a worst-case scenario, instead of achieving the 1.7% growth it currently forecasts.

SARB’s warning comes after the rand dipped sharply against the dollar, following what Trump dubbed “Liberation Day” on April 2, when he announced sweeping 30% tariffs on South African exports to the US. The rand briefly flirted with R20 to the dollar, a level last seen in June 2023, before stabilizing below R19.

The potential loss of the African Growth and Opportunity Act (Agoa) trade agreement, coupled with a significant depreciation in the currency and average tariffs of 25%, could severely affect South Africa’s GDP. SARB warns that these economic shocks would hit key export sectors like automotive manufacturing and deepen the country’s already sluggish growth trajectory.

SARB’s Economic Concerns

“The impact of tariff hikes on global growth and inflation is potentially large,” SARB said, adding that the full extent would depend on how these duties are applied globally. The bank emphasized that deepening trade tensions and geo-economic fragmentation could disrupt supply chains and reduce private investment.

South Africa’s domestic economy has already been under pressure. After rebounding to 5.0% growth in 2021 post-COVID, the country’s output slowed to just 0.6% last year, dragged down by load shedding, logistical inefficiencies, and underperformance from state-owned enterprises.

A Glimmer of Hope for the Rand?

Despite recent volatility, there’s some optimism for the rand. Old Mutual chief economist Johann Els believes the local currency could strengthen over time, potentially reaching between R16 and R17 to the dollar—and even as low as R15 under more favorable conditions.

Els noted that the currency had largely returned to early-2024 levels, trading between R17 and R18 to the dollar. However, continued uncertainty within the Government of National Unity has played a significant role in market instability, possibly accounting for up to 60% of the currency’s recent turbulence.

Path to Recovery?

According to SARB, sustained improvements in economic performance will require policies that permanently lower inflation risk and improve South Africa’s competitiveness. Addressing high production costs, investing in infrastructure, and restoring investor confidence will be crucial.

As global trade dynamics shift and tariffs become tools of political leverage, South Africa may need to rethink its trade strategy—both to weather short-term shocks and to secure long-term growth.

{Source: IOL}

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