On Balance - Economic Update March 2025
- Dr Roelof Botha
- Apr 2
- 3 min read
The downside
April started on the worst possible note for South Africa, with US President Donald Trump announcing a general tariff of 30% on imports to the US for South Africa and other selected countries, with a specific 25% tariff on foreign-made vehicles. Although it is unclear whether these two sets of tariffs will be levied separately, no doubt exists over the damaging effects on the South African and world economies. It should come as no surprise that the World Uncertainty Index (WUI) has reached its highest level since the lockdowns imposed by the COVID-19 pandemic five years ago. This index determines the level of uncertainty for 143 countries using the frequency of the self-same word in the quarterly Economist Intelligence Unit country reports.
On top of the latest salvo fired in President Trump’s tariff war, the second largest coalition partner in the National Unity (GNU) government, the Democratic Alliance (DA), voted against the 2025/26 budget's fiscal framework and revenue proposals. Although the budget was eventually passed in parliament with the backing of an assortment of smaller coalition partners and parties outside the coalition, the DA is challenging the outcome in court, and the future stability of the GNU is now under threat. The initial capital market reaction to these developments has been unequivocal: the rand depreciated by almost 2% against the US dollar, the JSE all-share index ended on 3 March 4.3% lower than on 1 March, and South Africa’s long-term bond yield moved higher. Business leaders and the GNU will require cool and calm heads to weigh the country’s economic policy options in the weeks ahead.
The upside
New record for SA’s gold & forex reserves
South Africa’s balance of payments is in excellent condition, with the gross gold and foreign exchange reserves reaching a new record high of more than R1.2 trillion in the first quarter of 2025. Despite a marginal net outflow on the financial account of the balance of payments during the fourth quarter, it ended the year with a surplus of R62.9 billion - an increase of 18.6% over the figure for 2023 and the third successive year that a surplus on this account was recorded.
During the fourth quarter of 2024, the current account of the balance of payments recorded its second surplus, more than R16 billion. This achievement was somewhat predictable due to a 41% surge in the value of gold exports (quarter-on-quarter), reaching R150 billion for the entire year. The gold price continues to break new records and recently breached $3,000 per fine ounce.
Optimism returns with La Niña.
The Agbiz / IDC Agribusiness Confidence Index improved markedly in the first quarter of 2025 to a level of 69.6 (above 50 denotes expectations of growth and vice versa). The current level of optimism is the highest since the end of 2021, a La Niña year that brought favourable rains across the country. This phenomenon has returned, with good rains over the country’s key regions for crop, fruit and vegetable production, whilst the livestock industry benefits from a welcome improvement in the grazing veld.
One key reason South Africa’s post-COVID rise in the consumer price index (CPI) peaked at below 8%, as opposed to around 10% in many key trading partners, is the self-sufficiency of food production. South Africa is the 32nd largest food exporter in the world, and the country’s farmers deserve praise, support, and respect for their vast contribution to foreign exchange earnings and employment.
Producer price index at record low
Price increases at the factory gate remain at their lowest level over two decades, with the producer price index (PPI) barely above zero. During the last two quarters of 2024, the PPI, as calculated by the Reserve Bank, recorded two successive quarters of negative readings for the first time since the country’s central bank has kept this data series.
Two main reasons for the new-found low-level stability of the PPI are year-on-year declines in the prices of vehicles and fuel, whilst price increases for machinery and household appliances have also been muted. The consumer price index is close to the bottom of the inflation target range (3.2%), translating into a benign inflationary environment. Hopefully, the Monetary Policy Committee (MPC) of the Reserve Bank will take note of these trends and provide some relief for indebted households in May.
On Balance by Dr Roelof Botha deliberately emphasises positive news, which often emphasises the resilience of the South African economy and the immense scope for new business opportunities.
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