The recent tariff announcement by the United States dubbed “Liberation Day” has sent shockwaves through the global markets. While certain categories and countries face significantly higher rates, only a handful of exemptions exist. This move constitutes one of the most aggressive tax increases in modern US history and is expected to have profound implications for economic sentiment, consumer spending and global trade dynamics. A global trade dynamics shift is in the making.
Revising the growth forecast
According to Old Mutual Group Chief Economist Johann Els, a US recession is now his base case. “The combination of sharp sentiment shocks, declining household wealth, and sharply higher import costs is likely to prompt a broader pullback in business investment and hiring,” says Els. He has revised his US GDP growth forecast down from +2.2% in January to +1.5% in March, and now to just +0.9% for the full year. Although the tariffs may cause a short-term spike in inflation, the broader disinflationary effects of weaker demand are likely to dominate. The Federal Reserve is expected to respond by holding rates steady at the May FOMC meeting but thereafter initiate a rate-cutting cycle from June onward, potentially delivering up to 125 basis points in cuts over the remainder of 2025.
“Depending on the downturn’s severity, front-loaded moves of 50 or even 75 basis points are possible. Concurrently, I expect the dollar to weaken further, potentially reaching 1.15 to the euro by mid-year and 1.20 by year-end,” Els adds.
What it means for SA
From the South African perspective, the direct trade exposure to the US is relatively limited. While US data indicates a $9 billion trade deficit (equivalent to 2% of South Africa’s GDP) local figures suggest a more modest $2 billion gap.
Els explains: “Precious metals, base metals, and vehicles comprise the bulk of South African exports to the US, with precious and some base metals notably exempt from the new 31% tariff rate. Imports from the US are concentrated in machinery, electrical goods and chemicals. As a result, the macroeconomic impact on South Africa will likely be felt more acutely in specific industries such as agriculture and vehicle manufacturing, rather than across the broader economy.”
Els has also downgraded his growth forecast marginally for South Africa in response to expected softness in US-linked exports but does not foresee a local recession.
Will interest rates get cut?
“China and the Euro Area, South Africa’s primary trading partners, are expected to adopt accommodative policy stances, which should help offset lost momentum. Inflation risks have also shifted to the downside, supported by stable oil prices and a potentially firmer rand. If inflation dips below 3% in Q2 and the global rate cycle turns, the SARB may find room to begin cutting interest rates from mid-year,” Els says.
Despite these favourable domestic conditions, Els cautions that the GNU still needs to stabilise.
“The uncertainty around the GNU and the DA continues participation is also cause for concern for confidence and investor sentiment. After the formation of GNU mid-year in 2024, there were improving confidence on the ability of government to implement the right policies to make sure the economy runs stronger. But I think they would be cooler heads there to make sure the DA stays in the GNU”.
