Slight easing in policy uncertainty, but economic landscape remains challenging

The North West University Policy Uncertainty Index (PUI) for the second quarter of 2025, released last week, has indicated a slight easing, dropping to 75.9 from a record high of 78.6 in the first quarter of 2025.

However, this figure still reflected a landscape fraught with economic uncertainty as it remained well below the baseline level of 50.

Professor Raymond Parsons, an economist at the North West University Business School, commented on the index's modest decline, framing it as a response to both internal and external factors impacting South Africa's economy.

Externally, while the global economic outlook continues to be unstable, Parsons said there has been a measure of relief on the trade front, particularly as the US administration has put a hold on most tariff hikes until July 9. This delay hinges on ongoing negotiations that could further influence international trade dynamics.

“The downward revision of various global economic growth outlooks therefore stems from a convergence of geopolitical risks, elevated economic uncertainty consequent on ‘Trumpanomics’ and erratic tariff decisions, and a tangible repricing of risks in financial markets generally,” he said.

Specifically, international organisations such as the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) have recently downgraded their growth forecasts for most major economies, including the United States. The only exception appears to be the European Union, which is still expected to see modest growth.

Domestically, South Africa is heading into the second half of 2025 with a mix of economic signals. On one hand, recent quarters have shown evidence of lower inflation and a potential easing of interest rates.

Parsons said should the inflation outlook stabilise, there may be room for another modest reduction in borrowing costs. Additionally, he said there was hope that South Africa could exit the Financial Action Task Force's (FATF) grey list by the end of 2025, which would further lower borrowing costs.

“There is the possibility of another modest cut in borrowing costs later in the year. There is also now the prospect that SA may be off the FAFT’s grey list by the end of 2025, in which case borrowing costs will be further lowered for SA,” he said.

However, Parsons cautioned that the positive indicators are offset by significant negative elements.

In particular, he noted that the country experienced a disappointing GDP growth of just 0.1% in the first quarter of the year, coupled with downgrades of growth projections by both the National Treasury and the South African Reserve Bank (Sarb). Elevated unemployment rates and muted high-frequency data exacerbate these challenges.

Parsons said that at the policy level, the most important development in the second quarter which is necessary to promote certainty was probably the eventual finalisation and acceptance by Parliament of a ‘pragmatic’ third 2025/26 Budget, but without the controversial VAT increase.

“However, if the various key parameters in the Budget are not met, future risks to fiscal sustainability remain,” he said.

Parsons urged that the National Government's agenda for a 3% GDP growth target in the medium term requires a significant boost to ensure that the economy's tailwinds can overcome the prevailing headwinds in the years to come.

“A strategic pivot in growth policy is needed to create the extra economic buffers required to deal with external shocks,” he said.

“The GNU’s policy agenda for a 3% GDP growth target in the medium term therefore now urgently needs an impulse, a jolt, an acceleration, so that the tailwinds in the economy outweigh the headwinds in 2025 and beyond.”

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