The radical shift in US trade policy under the second Trump administration, with the world’s largest economy imposing (or threatening to impose) high trade tariffs on its trading partners, has disrupted economic confidence and caused turmoil in global markets. The unpredictability has sparked fears of a potential global economic recession.

But what exactly is a recession? How will it affect the South African economy – and ultimately, your pocket?

What qualifies as a global recession?

A recession is a significant and widespread downturn in economic activity that typically lasts longer than a few months. A common rule of thumb is that 2 consecutive quarters of shrinkage in aggregate economic output indicate a recession in a national economy. When these conditions occur in many countries worldwide at the same time, it becomes a global recession.

But there’s more to it than that. How long a recession lasts depends on several factors, but even a recession for only 2 quarters could leave the economy in a condition that takes years to return to its former peak. For example, unemployment – the result of people being retrenched as an economy shrinks during a recession – often remains high well into the economic recovery. So, for many, the early stages of a recovery from a recession brings no immediate relief from hard times.

Governments adopt fiscal and monetary policies to prevent a recession becoming a full-blown economic depression. Some of these policies, like unemployment insurance, help address the consequences of a recession after it has started, while others are pre-emptive – like cutting interest rates to stimulate investment that could hold off a recession.

What is causing the economic downturn?

Even though there has been no sign of a global economic contraction yet, US trade tariffs are a major factor currently stoking fears of one. Tariffs are a tax on imported goods, paid by importers and passed on to buyers, resulting in higher prices on imported goods. They are intended to stimulate investment in local industries to produce goods currently being imported. However, local industries cannot always produce these goods at a competitive price, depending on a country’s latitude, altitude, climate, infrastructure, business costs, or resources.

The Trump administration appears to be using tariffs as leverage to secure favourable deals with its trading partners around the world, but the process so far has been neither systematic nor consistent. Mounting diplomatic and legal opposition, both in the US and around the world, has already forced the White House to soften or reverse its stance in several cases. Although the US has ‘paused’ or modified many tariff policies, the ongoing uncertainty is having a negative effect on the global economic outlook.

Top investment bank J.P. Morgan Research recently reduced the estimated probability of a US and global recession in 2025 from 60% to 40% – but warned that a period of constrained growth could lie ahead, especially as the US tariff shocks could still be influencing investor sentiment.

Global economic growth

According to the respected Organisation of Economic Cooperation and Development (OECD), the current global trading outlook shows substantial barriers to trade, tighter financial conditions, diminishing confidence, and heightened policy uncertainty. The OECD estimates that this will slow global growth from 3.3% in 2024 to 2.9% in both 2025 and 2026. The downturn is expected to be most concentrated in the US, Canada, Mexico and China, with smaller downward adjustments in other economies. This is almost entirely due to the economic uncertainty caused by the US trade policy shift and the lack of a clear programme going forward.

Uncertainty is now the dominant global economic theme. Collective uncertainty means that employers are less likely to add workers to their payroll, even if there is demand, which damages the growth prospects of the economy at national and global levels and does nothing to reduce unemployment.

South Africa’s economic outlook

Even if we avoid a recession, a tightening of global trading conditions drops another significant hurdle in the path of South Africa’s already embattled economy. The International Monetary Fund’s latest World Economic Outlook reported that our 2025 growth forecast has been cut to just 1%, down from the 1.5% forecast in January. This is far below the 1.9% predicted by the National Treasury during the protracted and contested March Budget Speech.

In simple terms, this will mean fewer job opportunities, slower wage growth, and a harder time for small businesses to grow or attract investment. If the economy isn’t growing faster than the population, which it currently isn’t, it becomes harder for your family to get ahead – or even stay afloat. Economists are clear on one point: South Africans, on average, are struggling to make ends meet.

The interconnected nature of the global market means that we’re not shielded from the uncertainty that trade wars and tariffs bring – SA trades with the world. When big economies slow down, they buy fewer of our exports, invest less in our markets, and often pull back on development loans or aid. That can mean higher prices on imported goods, fewer jobs tied to exports, and less money flowing into our economy from abroad. While our participation in the African Growth and Opportunity Act (a trade treaty with the US due to expire in September 2025) might not make or break our domestic economy, our global trading partners are essential.

At the start of 2025, we had high hopes that our government of national unity might inject some much-needed reform energy into the economy. However, local political instability, sluggish policy implementation, and increasingly, global economic volatility, have caused a revision of those expectations.

Your personal and business approach to the current economic slowdown should be cautious and look to protect your savings, investments, and business assets. The Nedbank Small Business Services Team can offer support and guidance to help your business cope with economic downturns, and a range of savings and investment options to improve your personal finances.