Would you have thought a year ago that US tariffs would throw world trade into turmoil or that the rand would be so strong?
2025 brought many economic surprises for the world and South Africa. Many of these surprises were positive, while only a few were negative, but even the ways the economy responded to some surprises were a surprise.
Momentum Investments chief economist Sanisha Packirisamy and economist Tshiamo Masike drew up a list of 10 economic surprises for their January economic outlook. About global growth, they say it proved sturdier than feared despite a harsher trade regime, but remains pedestrian by historical standards as protectionism, fiscal strain and political fragmentation sap momentum.
“Escalating tariffs hardened into a structural feature of global policy, unsettling markets and redrawing supply chains without tipping the world into recession. Domestic demand acted as a quiet stabiliser, supported by resilient labour markets and adaptive firms.”
They also note that inflation paths are diverging sharply, with China easing into disinflation amid industrial overcapacity and Japan tightening cautiously to defend its fragile exit from deflation, while Europe remains wary of cutting rates too aggressively.
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US stands apart as SA caught on margins of fragmented global order
However, they point out that the US stands apart.
“Fiscal excess, tariff-driven price pressures and doubts around institutional independence threaten a rise in bond yields. Against this unsettled backdrop, bond markets are reasserting discipline, forcing governments to pay for fiscal indulgence as public debt ratios climb.”
Packirisamy says South Africa is caught on the margins of a fragmented global order.
“A favourable commodity price mix and a firmer rand offer temporary insulation, while improved fiscal discipline has been rewarded with an early sovereign rating upgrade.
“However, growth remains modest, constrained by weak investment and coalition politics. Encouragingly, softer inflation and a credible shift to a lower inflation target should give the South African Reserve Bank (Sarb) scope for further measured cutting of the repo rate in 2026, provided political and reform momentum holds.
“South Africa is operating in a fragmented global environment, but favourable commodity prices and lower oil costs provided partial insulation, supporting the rand and improving terms of trade. Firmer fiscal discipline lifted investor confidence, underpinning a sovereign credit rating upgrade.”
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Economic surprise 1: The big stick US tariffs return
Packirisamy says Washington is again leaning heavily on tariffs, signalling that the shift toward a more defensive trade stance is now a settled feature of US policy rather than a temporary tactic.
“Measures that were once occasional negotiating tools have become part of a broader push to redirect supply chains and assert strategic priorities.
“The wider scope of tariffs periodically unsettled markets, prompting renewed questions about the outlook for global inflation, the direction of investment flows and the ability of affected economies to cope with a more fragmented trading environment, particularly as actual tariff rates continue to lag effective rates.”
Masike adds that higher tariffs already started positively contributing to US government coffers but the share of customs duties to overall government revenues remains under 2%.
Economic surprise 2: Surprisingly sturdy expansion
Despite a more fragmented trading environment, growth held up better than many had expected, despite subdued business and consumer confidence measures. Trade volumes also did not dip by as much as initially anticipated due to an increase in transshipments as China continues to circumvent direct trade routes into the US.
Masike says higher tariffs, supply chain snags and rising input costs appeared likely to erode corporate profitability and weigh on exports, leading forecasters to prepare for a softer growth patch. “Yet, a sharper slowdown failed to materialise.”
She says domestic demand remained firm, supported by stable employment, steady household spending and a quicker-than-expected shift by businesses toward new sourcing arrangements.
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Economic surprise 3: Record polarisation pushes US into longest shutdown
America’s latest and longest government shutdown exposed how deeply political polarisation and fiscal pressures are now corroding the machinery of governance, Packirisamy says. “The episode also casts a harsher light on America’s long-term fiscal trajectory.
“Rising interest costs are consuming a growing share of federal revenue, while ageing-related pressures, from healthcare programmes to social security, are set to widen structural deficits without meaningful reform.”
Economic surprise 4: From anti-establishment outsiders to governing insiders
Masike says parties that once channelled frustration with political elites moved from the electoral margins into the centre of government, drafting budgets, steering trade policy and reshaping migration rules.
“For investors, the surprise is not their arrival but their durability. Movements previously written off as inexperienced or inherently unstable proved far more resilient in office than expected, less prone to burning out through internal rifts or voter remorse.”
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Economic surprise 5: Strategic promiscuity redraws the global trade map
Countries confronted with rising tariffs, geopolitical friction and the growing use of supply chains as leverage responded with an uncommon burst of deal-making, preventing a steeper drop-off in the global trade-to-gross domestic product (GDP) ratio, Packirisamy points out.
“Governments that once relied heavily on familiar partnerships began striking agreements across a wider range of counterparts, diluting the exclusivity of old alliances in favour of more flexible, opportunistic arrangements.”
Economic surprise 6: The VAT hurdle
South Africa’s government of national unity (GNU) encountered its first major obstacle – not over foreign policy or security matters but over managing levers to further the fiscal consolidation path.
“Plans to raise VAT collided head-on with differing priorities inside the coalition, producing an impasse that knocked the budget process off its usual course. The stand-off highlighted the structural tensions of shared governance, including the imperative to secure revenue for essential public services sits uncomfortably alongside political sensitivities and the reality of strained household finances.”
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Economic surprise 7: Fortunate price mix lifts SA’s terms of trade
A well-timed upswing in key commodity prices gave South Africa an unexpected external windfall, with gold and platinum benefiting from a mix of safe haven buying, geopolitical unease and lingering supply tightness, while global oil benchmarks remained softer than anticipated.
Packirisamy says together, these shifts nudged the country’s terms of trade in a favourable direction, lending the rand more support than underlying economic conditions may have warranted.
“The improvement also worked quietly in the background as an economic stabiliser, offsetting some of the drag from weaker domestic momentum and a patchy global recovery.”
Economic surprise 8: Firmer rand makes tough inflation target more tenable
Under normal circumstances, shifting to a stricter 3% inflation target would risk rattling markets and prompting doubts about policy resolve. However, this time, Packirisamy says, the external environment did much of the heavy lifting.
“A stronger rand, supported by a weaker dollar, firm precious metal prices and relatively soft global oil prices helped contain imported cost pressures.”
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Economic surprise 9: Fiscal discipline pays off in surprise credit rating upgrade
S&P Global’s unexpected lifting of South Africa’s sovereign rating reflected a gradual strengthening of the country’s public finances.
“The decision to upgrade South Africa came on the heels of the country’s removal from the FATF greylist, a development largely anticipated by markets but still meaningful in signalling a cleaner operating environment for cross–border capital,” Masike says.
Economic surprise 10: Long road to professionalising SA’s law enforcement
The Madlanga commission’s work has begun to expose the depth of the structural flaws in SA’s law- enforcement system.
Packirisamy points out that the political ramifications are not trivial, while the inquiry at least offered a more coherent outline of what reform would require, providing a starting point for rebuilding credibility in institutions that were allowed to drift for too long, leading to a structural decline in citizen trust in institutions like the police force.
