Just as South Africa’s economy starts showing signs of recovery, a new threat looms. This time, it’s coming from Washington DC, where President Donald Trump’s administration has imposed a steep 30% tariff on South African imports, a move that took effect last week.
The South African Chamber of Commerce in the USA has warned that these tariffs could seriously damage the country’s economic progress – particularly through job losses and slower growth. The automotive industry, a vital engine of South Africa’s manufacturing sector, is expected to be one of the hardest hit.
In 2024 alone, South Africa exported about $2.4 billion in vehicles and parts to the US, all under the duty-free African Growth and Opportunity Act. That preferential treatment is now under threat. If export volumes drop, the knock-on effect on the sector – which contributes over 5% to GDP and supports more than 116 000 jobs – could be significant.
Economists suggest the impact could shave as much as 0.3 percentage points off national growth. It’s a frustrating development, particularly as South Africa was finally beginning to post promising figures.
Lesetja Kganyago, Governor of the South African Reserve Bank (SARB), has also expressed concern about the potential impact of the US’s escalating tariff war.
During the SARB’s annual meeting of shareholders on 8 August, Kganyago said it is “now increasingly clear that tariffs will settle at high rates”.
“The Yale Budget Lab calculates the effective tariff as of August at 18.3%, the highest since 1934. This implies significant price pressures that will have to be absorbed somewhere in the system,” he said.
In South Africa, however, the SARB’s preliminary assessment is that these tariffs – along with other global economic uncertainties – are causing only modest damage to growth, while leaving inflation largely unchanged.
“The US is a large trading partner for South Africa, but it is not as important as Europe, China, or the Southern African Development Community. Our exports to the US mostly consist of commodities − some of which are exempted − and manufactured products such as cars. Some parts of the agricultural sector are exposed, but total agricultural exports are only about 3% of our total exports to the US,” Kganyago said.
Green shoots of recovery
Kganyago noted that despite the shocks from wars and tariffs, the global economy has shown resilience.
Late last year, the International Monetary Fund projected global growth of 3.2% for 2025. This forecast has since been revised down to 3%, although in April it was even lower at 2.8%.
“So, we have actually had some upward growth revisions. For all that has happened in the first half of the year, it is surprising that growth has held up this well, and that forecasts are moving up rather than down,” he said.
For the SARB’s latest forecast round, Kganyago explained, the central bank factored in a higher tariff rate. “This moved our growth projection lower for the year down by about 0.1 percentage points. This is a setback, but not catastrophic.”
At the release of the 2025 Old Mutual Savings & Investment Monitor (OMSIM), Old Mutual group chief economist Johann Els outlined some of the positive economic indicators seen in recent months. After years of stagnation – 1.1% average annual growth over the past 16 years – the second quarter of 2025 is expected to deliver much better numbers than the first. Mining, manufacturing, and utilities production data for April and May have all come in significantly stronger, suggesting a broader upturn.
Els noted that improved performance was not limited to output figures. Leading economic indicators, including the Purchasing Managers Index and Reserve Bank indices, also pointed to better prospects for the second half of the year and into 2026.
Part of the momentum, he said, stems from resolving long-standing structural bottlenecks – particularly in electricity. South Africa has come a long way from the stage six loadshedding days of 2023 and early 2024. Significant progress in stabilising energy supply and ongoing improvements in logistics and water infrastructure have helped to set the stage for private sector investment.
“By that, I mean lower inflation and lower interest rates. That’s hugely beneficial to consumer spending as well,” said Els, referring to cyclical tailwinds that are finally kicking in.
The consumer reawakens
According to Els, consumer spending – making up roughly 70% of GDP – has been on the rise since early 2024. Even before major rate cuts or the election-year boost from the two-pot retirement reform, retail and vehicle sales had begun to recover.
By the third quarter of 2024, the momentum had picked up, thanks to falling inflation, improved political stability after the formation of a Government of National Unity, and greater access to two-pot cash. Although business and consumer confidence remain volatile, they are trending upward.
Confidence, Els emphasised, is central to growth. Sustained improvements in policy clarity, fiscal direction, and private sector participation are essential. He credited efforts such as Operation Vulindlela and public-private partnerships in energy, logistics, and infrastructure for laying the groundwork.
Els believes this shift could move South Africa from its long-standing 1.1% growth trajectory toward a more sustainable 2.5% to 3%. He says although not quite the 5% to 6% growth ideal for deeper transformation, it is triple the pace of the past decade-and-a-half.
“We will probably never get to the 5% or 6% because of other structural issues, mainly in the labour market. Skills deficit and overly regulated labour market will probably prevent us from ever getting to the %% or 6% economic growth that we ideally need, but we can get from 1.1% towards 2.5% to 3%.”
He said this would have a material impact on confidence, employment, the stabilisation of government finances, and investor returns.
A tighter grip on inflation
South Africa has also made significant strides in managing inflation. Since adopting its inflation-targeting framework in 2000, the SARB has mostly kept inflation within its target band of 3% to 6%, even amid currency depreciation. In May, inflation fell to 2.8%, and with interest rates dropping from 11.75% in September 2024 to 7% by July 2025, the SARB is now pushing to lower the target range further.
Kganyago said inflation is expected to rise over the next few months.
“Food inflation has picked up, mainly because of meat prices. Fuel prices are also falling more slowly now, compared to the recent past. However, we expect this uptick in headline inflation to be temporary, and we look forward to inflation coming back to around 3% over the medium term, which is at the bottom of our 3% to 6% target range.”
At the May Monetary Policy Committee (MPC) meeting, the SARB argued that the current target range of 3% to 6% is too wide and should be replaced with a 3% anchor.
At the July MPC meeting, Kganyago presented updated forecasts, showing that headline inflation would rise in the near term. He highlighted that under a 3% objective, core inflation would remain close to 3% and expectations would align with this level by 2027, supported by a stronger rand. If the 4.5% midpoint was retained, “there is no learning, and the exchange rate is more depreciated, so inflation reverts to 4.5% instead”.
Read: Can the SARB anchor inflation at 3% without hiking rates?
Read: SARB ramps up 3% inflation goal – Godongwana insists on due process
Els supports the SARB’s move, arguing that anchoring inflation closer to 3% will align South Africa with key trading partners and offer long-term benefits to consumers, including lower interest rates.
Your inflation rate isn’t mine
Although national inflation appears under control, individual consumers face a different reality. Els emphasised that the average hides wide disparities in “personal inflation”. While consumer goods – such as clothes, furniture, and appliances – have seen subdued inflation, essential services such as electricity, education, and healthcare continue to rise well above the average.
“While I strongly believe that our inflation numbers are absolutely accurate, it’s the average of 64 million individual inflation numbers,” Els explained. “We spend our money in different ways, so different spending baskets will mean different individual inflation rates.”
This personal inflation has real consequences for saving and retirement planning. Els warned that at 3% inflation, a R1 000 basket of goods today would double in price in 25 years. But at 6% personal inflation, that same basket would cost R4 300 – and R8 600 at 9%.
Likewise, R10 000 in monthly income today could have the purchasing power of only R5 000 at a 3% inflation rate, or R1 000 at 9%, within a single generation.
“These are scary numbers,” said Els. “We need to save more. We need to save for longer. And we probably need to take on more risk, because over a longer period of time, the riskier assets will outperform.”
Bottom line? Save earlier, save more
Despite geopolitical headwinds such as Trump’s tariffs, the broader outlook for South Africa’s economy is more positive than it has been in years. Inflation is under control, structural reforms are gaining traction, and growth – though modest – is gaining momentum.
But for households, the challenge remains deeply personal. The numbers may be improving at a macro level, but how far your pay-cheque stretches depends on how you spend it. And as Els emphasised, that is the real reason South Africans need to start saving sooner, saving more, and paying attention to their personal inflation realities.
