South Africa’s central bank has warned that the country’s economy could contract by nearly 0.7% if a key trade agreement with the United States, the African Growth and Opportunity Act (Agoa), is revoked – a likely scenario if US tariffs are imposed causing the rand to weaken.
This bleak projection, outlined in the Reserve Bank’s April Monetary Policy Review released on Tuesday, places increased diplomatic pressure on President Cyril Ramaphosa to restore relations with Washington, BD Live reports.
The bank's analysis suggests that South Africa finds itself increasingly vulnerable to the combined effects of shifting global trade dynamics and internal economic fragilities.
The review followed Ramaphosa’s appointment of Mcebisi Jonas, MTN chair and former finance minister, as a special envoy to the United States.
The move comes as speculation mounts that Agoa will be scrapped if the Trump Administration proceeds with 30% tariffs on South African goods, the implementation of which was recently held back for a period of 90 days.
Diplomatic tensions between Pretoria and Washington have escalated in recent months, particularly following the expulsion of South African ambassador Ebrahim Rasool by the US administration. Former President Donald Trump has levelled serious accusations against South Africa, including claims of human rights violations and land expropriation targeting white Afrikaners.
Complicating matters further are past remarks made by Jonas during a 2020 address at the Ahmed Kathrada Foundation’s annual lecture. At the time, he characterised Trump as emblematic of a dangerous surge in nationalist populism – sentiments that, though widely shared internationally at the time, could now undermine his credibility as envoy and increase the likelihood of the Reserve Bank’s worst-case scenario materialising.
BD Live reports that, in modelling its most severe outlook, the Bank envisaged the cancellation of Agoa, the introduction of a uniform 25% tariff on South African exports to the US, and a 15% depreciation of the rand. This combination of shocks was predicted to drive inflation almost one percentage point higher, pushing the repo rate up by 1.24 percentage points and ultimately causing a 0.69% decline in GDP.
The bank’s report highlighted the broader risk of stagflation, warning that rising global tariffs and potential retaliatory measures could severely undermine both global growth and inflation forecasts. With policy uncertainty on the rise, the Bank noted, medium-term projections were becoming increasingly unreliable.
A milder scenario considered by the Bank assumed the termination of Agoa without the introduction of retaliatory tariffs. In this case, the economy was expected to experience a modest 0.04% decline in real GDP, with minimal effects on inflation and interest rates.
An intermediate scenario, involving both the termination of Agoa and the full implementation of a 25% tariff, was projected to contract GDP by 0.23%. Inflation would decrease slightly by 0.04 percentage points, with a similarly minor 0.08 percentage point reduction in the repo rate.
Theo Janse van Rensburg, who heads macro forecasting at the Reserve Bank’s economic research unit, explained that the assumption underpinning the models was that the tariffs would be permanent. He pointed out that around 7.5% of South African exports were directed to the United States, but only a quarter of these actually benefited from Agoa – suggesting that the direct impact of losing the deal would be somewhat contained.
On a more optimistic note, the Bank considered a scenario in which the US dollar depreciates by 5% against the euro, while global commodity prices rise by 10%. Under these circumstances, South Africa’s GDP growth in 2025 could improve to 1.83%, surpassing the baseline projection of 1.66%, with further improvements anticipated for 2026 and 2027.
Headline inflation would ease slightly to 3.54% in 2025, continuing on a downward trend in subsequent years. Repo rates were also projected to remain marginally below baseline levels, except in 2027 when a slight uptick was expected.
Nevertheless, the range of possible outcomes presented in the policy review intensifies the challenge facing Jonas. His 2020 remarks, in which he reportedly described Trump as a "racist, homophobic right-winger", could now hinder efforts to rebuild relations, even though such statements mirrored widespread criticism of Trump during his presidency.
