The Impact of Local and Global Recession on the South African Economy in 2025

Employment Challenges

A recession generally leads to decreased consumer spending, causing businesses to cut costs, often through layoffs or hiring freezes. In South Africa, where unemployment rates are already high (around 32.6% average 2024), an economic downturn could further exacerbate these figures. With many sectors, including tourism, manufacturing, and services reliant on domestic and international trade, job losses are likely.

1. Increased Unemployment: A decline in demand for goods and services could lead to a spike in layoffs across various industries. This would especially impact sectors where employment is contingent upon market stability, like retail and agriculture.
2. Reduced Job Creation: Companies may stall expansion plans or investment in new projects, further decreasing opportunities for job seekers and intensifying competition for the few available positions.
3. Youth Employment: The youth bulge in South Africa, facing already high youth unemployment rates, may find themselves with even fewer opportunities, leading to increased frustration and potential social unrest.

Domestic and International Trade

The South African economy is tightly interwoven with global markets, meaning that international trade dynamics will significantly impact local economic conditions.

1. Exports and Tariffs: The imposition of tariffs by the United States (US) and retaliatory actions by the trading partners of the US could hinder South African exporters who rely on global supply chains and duty-free access to especially the US market with which South Africa currently still has a trade surplus. The imposition of 30% tariffs on South African exports to the US will increase costs and reduce competitiveness within that market specifically.
2. Imports and Inflation: The possible effect of the looming trade war between the US and the rest of the world could potentially drive-up prices for imported goods where South African consumers may face higher prices for foreign products. This could lead to inflationary pressures, diminishing purchasing power and may spark fears of higher interest rates to follow.
3. Commodity Prices: The South African economy is heavily reliant on commodity exports such as gold, platinum, and coal. A global recession may lead to decreased demand for some these commodities, where the gold price may increase even further on the back of prolonged market uncertainties. These changes in demand and price of certain mining resources could further impacting trade balances and foreign currency earnings of South Africa.

In summary, South Africa could see a contraction in both exports and imports, directly affecting economic growth rates in the short-to-medium term.

Government Finances and Tax Collection

The combination of rising expenditures and declining revenues presents a grim forecast for government finances:

1. Increased Debt Servicing Costs: With R424.9 billion earmarked for debt servicing in the 2025/26 fiscal year and projected to grow by 7.1% annually, the government’s fiscal space would further constrict. Any downturn would likely escalate the difficulty of managing existing debts and the repayment of these debts in future.
2. Declining Tax Revenue: Economic slowdowns generally lead to lower income and value-added tax collection due to reduced corporate profits and household incomes. As businesses struggle and unemployment rises, tax revenues may fall short of projections, exacerbating the deficit.
3. Social Spending Pressures: With approximately 61% of government expenditure devoted to social grants, healthcare, education, and housing, a recession could necessitate a re-evaluation of these budgetary allocations. The government may be forced to cut back on social spending at a time when it is needed most, potentially leading to increased social tensions and even unrest in some cases.

Conclusion

In summary, a looming global recession, coupled with South Africa’s fragile fiscal state, presents significant threats to employment, trade dynamics, and government finances in 2025. Addressing these challenges will require robust and innovative policy responses aimed at stabilising the economy, protecting jobs, and ensuring essential services are maintained. A concerted effort among policymakers, businesses, and communities is necessary to navigate these turbulent economic waters effectively. With proactive measures and strategic planning, South Africa may mitigate some of the adverse effects of a recession, fostering resilience in an unpredictable global economy and readying itself for the upswing in economic activity 12 to 60 months after market losses and correction that started on the 7th of April 2025.