Unemployment could get even worse in third quarter due to US tariffs

After the shocking announcement on Tuesday that the South African unemployment rate increased again in the second quarter of the year, economists are now warning that it will be even worse in the third quarter due to US tariffs and domestic politics.

Jee-A van der Linde, senior economist at Oxford Economics Africa, says while the latest job numbers reflect the impact of tariff uncertainty, the actual economic impact of the 30% US tariff will only reflect in the next round of employment data.

“The 1.7% increase in the number of unemployed people in the second quarter aligns with the decline in second-quarter business sentiment. Companies faced heightened uncertainty relating to US tariffs and domestic politics.

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“With the 30% US import tariff having come into effect on 7 August, there is a risk that the employment numbers for the third quarter could reflect even more economic strain. Companies will likely be compelled to scale back employment and investment plans as they traverse an uncertain economic landscape while trying to maintain competitiveness in the US market, which previously provided tariff-free access.”

He says although recent economic data releases point to improved manufacturing and mining activity during the second quarter, these follow a poor performance at the beginning of this year. “This does not change our view that the business environment has improved to the extent that economic growth will pick up meaningfully in the near term.”

Deterioration in economy’s ability to create jobs

Thanda Sithole, senior economist at FNB, noted that the absorption rate decreased further by 0.1 percentage points to 40.2%, suggesting a moderate deterioration in the economy’s ability to create jobs during the second quarter.

“At this rate, a significant proportion of the working-age population is still left out of the formal economy, emphasising the need for faster and labour-intensive growth.”

She also points out that the critically high unemployment for the youth, standing at 62.2% for people between the ages of 15 and 24 and at 40.5% for those between the ages of 25 and 34, underscores the urgent need to accelerate pro-growth structural reforms that can drive sustainable and inclusive economic expansion.

“Government’s diplomatic stance in the wake of the US ‘Liberation Day’ tariffs remains critical to mitigate potential job losses stemming from the effects of steep US tariffs on South Africa’s entry into the US market.

“While the US remains an important trading partner, accounting for 7.5% of South Africa’s total merchandise exports, efforts to diversify export markets across regions must be intensified to cushion the economy against the potential impact of bilateral tariffs imposed by the US.” 

Sithole says the improvement in employment in the second quarter aligns with expectations of further gross domestic product (GDP) growth. “However, the persistently high unemployment rate highlights the continued vulnerability and weakness of the labour market.

“This is further compounded by heightened uncertainty over the potential employment impact of US tariffs on sectors such as agriculture, automotive, machinery and equipment manufacturing and mining (excluding critical minerals producers). Over the medium term, sustained structural reforms and accelerated efforts to diversify export markets should help support job creation.”

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Unemployment could increase due to US tariffs

Busisiwe Nkonki, Johannes (Matimba) Khosa and Nicky Weimar, economists at the Nedbank Group Economic Unit, also say that the outlook for the labour market remains uncertain. “The easing logistical constraints, more stable power supply and improving consumer spending will somewhat support employment.

“However, employment growth will be partly offset by the anticipated deterioration in global trade conditions due to the US tariff policies. Although the US imposed a 30% reciprocal tariff on South African exports from 7 August, government is still trying to negotiate a better rate.

“Either way, tariffs are set to stay and some export-oriented industries will feel the pain. The agricultural and automotive sectors will be most affected. Within agriculture, the citrus exporters will be hit the hardest.

“This will undermine the benefit from favourable weather conditions, which are expected to support crops and underpin higher activity in the next harvest season. The steel and aluminium sectors will also be affected as they form part of the components supply chain.”

The Nedbank economists expect that employment in general government will continue to be undermined by fiscal constraints. Overall, they forecast economic growth to remain subdued this year, averaging 1% before increasing slightly to 1.6% over the next three years.

“With this muted growth, it will be difficult to reduce the unemployment rate significantly in the short term, given the fast-growing labour force.”

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Dampened consumer spending and constrained economic growth

Adriaan Pask, CIO at PSG Wealth, says South Africa’s persistent high unemployment rate is likely to dampen consumer spending and constrain broader economic growth prospects. “These challenges continue to place significant pressure on policymakers to introduce and accelerate reforms aimed at fostering sustainable job creation.

“Our investment solutions are carefully positioned with leading active managers who possess the expertise and agility to capitalise on emerging opportunities while effectively managing risks associated with a difficult economic environment.”

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Informal employment

In addition, Sithole noted that Statistics SA plans to revise its questionnaire ahead of the third quarter publication to adapt the survey to a rising trend of informal economic participation and dynamic labour market trends exacerbated by the pandemic.

“In line with this, people who are not in the labour market will not be assumed to be economically inactive and the questionnaire may consider different forms of employment agreements and benefits.”

Sithole says the survey may also remove restrictions such as the age limit of 64 years, considering that people are working longer. “We look forward to these adjustments and how they bring us closer to a fair reflection of the labour market in South Africa.

“Labour data is key to policymaking and business strategy and should be in line with international best practise in order to be considered credible and comparable.”