When economic policy uncertainty is strongly present in the environment, it lowers investment, employment and output.
The Policy Uncertainty Index for the second quarter has decreased slightly but remains deep in negative territory as the global outlook remains uncertain despite the US promising to reduce tariffs on goods imported from South Africa.
According to the NWU Business School Policy Uncertainty Index (PUI) for the second quarter, policy uncertainty eased to 75.9 compared to its record high of 78.6 in the first quarter of the year.
The Index was launched in early 2016 and is published annually in January, April, July, and October. An increase beyond 50 reflects heightened policy uncertainty, while a decline means reduced uncertainty.
The Policy Uncertainty Index is expressed as a net balance, representing the net outcome of positive and negative factors that influence the calibration of policy uncertainty. The three elements constituting the latest Policy Uncertainty Index show:
- The media data reflected a modest decline in references to policy uncertainty
- The survey of economists almost universally assessed policy uncertainty to be more or less unchanged
- The University of Stellenbosch’s Bureau for Economic Research survey of manufacturers experiencing policy/political uncertainty was slightly up from 77 to 80.
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Partial respite on trade with suspension of US tariffs for Policy Uncertainty Index
Professor Raymond Parsons, an economist at the NWU Business School, says that while the global outlook is highly uncertain, there has been a partial respite on the trade front, as the US administration has suspended most, but not all, tariff hikes until July 9, pending further negotiations.
“Internally, although there have been some positive developments, they were outweighed by negative factors.”
Parsons says the global economic growth outlook was further trimmed by international organisations such as IMF and the OECD that reduced growth forecasts for most major economies, including the US economy, except for the EU economy, where modest growth is still anticipated
“The downward revision of various global economic growth outlooks therefore stems from a convergence of geopolitical risks, elevated economic uncertainty due to ‘Trumpanomics’ and erratic tariff decisions and a tangible repricing of risks in financial markets generally.
“These overall economic assessments were reinforced by the Israeli-Iran conflict, further increasing global economic uncertainty. (This Policy Uncertainty Index was finalised before the US attack on Iran).”
Parsons also points out that the US Fed decided to leave interest rates unchanged for the fourth time in June, while the World Bank assesses that the Sub-Saharan economy will grow by 3.5% in 2025, rising to 4.3% in 2026-2027, but with the usual associated risks and uncertainties.
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Positive factors for South Africa: lower inflation and repo rate in Policy Uncertainty Index
In the second half of 2025, positive factors in South Africa over the past quarter included lower inflation and easier interest rates, and if the inflation outlook continues to stabilise, there is the possibility of another modest cut in borrowing costs later in the year, Parsons says.
“There is also now the prospect that South Africa may be off the Financial Action Task Force (FATF) grey list by the end of 2025, which will mean that borrowing costs will be lowered for South Africa.
“At the policy level, the most important development in the second quarter, which is necessary to promote, was probably parliament’s eventual finalisation and acceptance of a ‘pragmatic’ third 2025-26 Budget, but without the controversial VAT [value-added tax] increase.
“However, if the various key parameters in the Budget are not met, future risks to fiscal sustainability remain.”
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Negative factors to beware of in second half of 2025 in Policy Uncertainty Index
Parsons also points out that negative factors offsetting the positive ones in the second quarter include:
- The muted high-frequency data in recent months
- The disappointing 0.1% gross domestic product (GDP) growth in the first quarter
- National Treasury and the South African Reserve Bank are scaling down growth forecasts for 2025 and
- Higher unemployment.
“The weak fixed capital investment trends revealed in the GDP figures for the first quarter also raised a red flag, and heightened planned infrastructural spending must urgently respond. If present trends persist, the present GDP growth outlook for 2025 is about 1%, increasing to about 1.5% next year.”
He warns that the developing economic recovery in South Africa is struggling to gain momentum and says the country needs a strategic pivot in growth policy to create the extra economic buffers required to deal with external shocks.
“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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Negative trends in Policy Uncertainty Index that can be reversed
Parsons says that although the Policy Uncertainty Index for the second quarter remains well in negative territory for now, these trends proved to be reversible in the past if the right actions are taken through policies and actions under South Africa’s control.
“In any event, the emerging economic recovery at present is battling to gain traction and therefore needs maximum support to underpin the business cycle upturn. A strategic pivot in investment and growth policies is also needed to create the extra economic buffers required to deal with emerging external shocks.”
