Economic Review | The April Edition

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Global equity markets plunged after US President Donald Trump’s tariff announcement on Liberation Day, with many countries vowing to introduce retaliatory tariffs. Market volatility was exacerbated by on-again/off-again tariff announcements. The trade war sparked fears of a US recession amid slowing growth, weak consumer sentiment, and sticky inflation. Rapid changes in global trade dynamics caused tremendous confusion and unease among investors, weighing on global equity markets. Optimism about European equity markets was evident, largely because of Germany’s fiscal spending plan and the region’s efforts to lowering inflation to the target range.

Trump announces sweeping new tariffs

In April, the risk of a global trade war escalated after US President Donald Trump introduced broad tariffs on major trading partners, on a day he referred to as “Liberation Day”, It signaled a significant shift in longstanding US trade policy. Trump described it as one of the most pivotal moments in US history as he implemented a 10% universal tariff on all imported goods, along with reciprocal tariffs targeting several dozen countries. These measures took effect on 5 and 9 April. Trump imposed further tariffs on nations he accused of exploiting the US, declaring that the country had been “looted” by its trading partners for years and that he was putting a stop to it.

Since taking office, Trump has unsettled global stock markets, created concerns among business leaders and economists, and sparked intense disputes with America’s top trading partners by repeatedly announcing – and then delaying – tariff plans on foreign imports. In his “Liberation Day” speech, Trump presented a chart comparing what he called “unfair” tariffs imposed on the US with the newly-introduced “USA Discounted Reciprocal Tariffs.” According to the chart, China imposed a 67% tariff on US goods, pushing the US to respond with a 34% tariff. The European Union, which the White House claimed to be levying a 39% tariff, faced a 20% US tariff. The UK, reportedly charging 10% on US imports, was met with a matching 10% tariff under the new policy. Below is a list showing the announced reciprocal tariff rates, along with the White House’s calculations of tariffs charged on the US by 15 major countries.

Source: Visual Capitalist

Although Canada and Mexico were previously targeted by broad tariff proposals, they were granted special exemptions. Trump said that the new tariff calculations also factored in “currency manipulation and trade barriers”, although the White House has not provided the methodology behind these figures. Economists from Goldman Sachs and JP Morgan warned in April that uncertainty surrounding Trump’s trade policy significantly raised the risk of a recession.

UK inflation falls

UK inflation eased to 2.6% year-on-year (y/y) in March, slightly below the expected 2.7%, adding pressure on Bank of England policymakers to consider cutting interest rates in April amid growing uncertainty about Trump’s tariff disputes. Price growth remained subdued ahead of an anticipated increase in April, when households face higher council tax and utility costs. The March figure followed a decline in the UK consumer price index to 2.8% y/y in February from 3% y/y in January.

According to the Office for National Statistics (ONS), a decline in fuel prices and a slowdown in the cost of a night out helped to push inflation lower, although this was offset by rising prices of clothing and footwear. Food prices also contributed to weaker inflation, remaining flat in March compared to an increase in the same month in 2024. Trump’s tariff announcements in April added uncertainty to the inflation outlook, and market volatility is expected to exert downward pressure on economic growth.

Source: Office for National Statistics

Prior to Trump’s tariff announcements, many analysts projected that inflation would begin to rise from April, potentially peaking around 4% during the summer before gradually easing in 2026. However, the escalating US trade war has made these predictions uncertain, especially if China redirects goods originally meant for the US to European markets, which could suppress inflation. Labour market data showed signs of weakness, with a drop in employment in March and a reduction in job postings by companies. UK Chancellor Rachel Reeves highlighted falling inflation for two consecutive months, wage growth outpacing price increases, and stronger-than-expected economic data as signs that the government’s reform agenda is making progress. But she acknowledged that challenges remain. Although the UK economy has struggled with slow growth, recent figures were more optimistic. Due to ongoing global trade tensions, analysts warned that this momentum may not last, and a potential recession could be on the horizon.

For your interest

1. China posts strong growth in Q1

• The National Bureau of Statistics (NBS) reported that China’s gross domestic product (GDP) hit 5.4% in the first quarter of 2025. That was considerably higher than the expectations of more than 50 economists surveyed by Reuters, who had forecasted an expansion of 5.1%, and it continues a recent run of surprisingly strong export-driven growth at the end of 2024.
• The NBS Deputy Director said China’s economic foundation was stable, resilient and had great potential, giving the country the courage, ability and confidence to cope with external challenges and achieve the established development goals.

(Source: CNN Business, April 2025)

2. ECB lowers interest rates in April

• The European Central Bank (ECB) lowered the three key interest rates by 25 basis points. The interest rates on the deposit facility, the main refinancing operations and the marginal lending facility decreased to 2.25% y/y, 2.40% y/y and 2.65% y/y respectively, effective 23 April 2025.
• In particular, the decision to lower the deposit facility rate – the rate through which the Governing Council steers the monetary policy stance – was based on its updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission.

(Source: ECB, April 2025)

3. SA’s retail sales increase

• Retail trade sales increased by 3.9% y/y in February 2025. Four of the seven retail groups recorded a positive month, with textiles and clothing and general dealers driving most of the upward momentum.
• Retailers of household goods and the miscellaneous group referred to as “all other retailers” also contributed positively. On the downside, consumers spent less on hardware; food and beverages; and pharmaceuticals and cosmetics.

(Source: IOL, April 2025)

4. SA’s inflation eases to the lowest level since June 2020

• Annual consumer inflation cooled to 2.7% in March, the lowest print since June 2020 when the rate was 2.2%. A decline in fuel prices was the main factor behind the softer rate in March.
• Inflation at the factory gate was also lower. The annual change in the producer price index declined to 0.5% in March from 1% in February.

(Source: Stats SA, April 2025)

Budget 3.0 announced for SA

In April 2025, the South African Revenue Service (SARS) formally welcomed the Western Cape High Court’s decision to suspend the proposed 0.5 percentage point VAT increase, which had been scheduled to take effect on 1 May 2025. The ruling marked a significant turnaround from Finance Minister Enoch Godongwana’s earlier stance, as he had previously stated that a VAT hike was unavoidable unless other revenue-generating options were presented.

Earlier this year, the minister created controversy in the Government of National Unity (GNU) by proposing a two-percentage-point VAT increase. The proposal led to the postponement of the February Budget Speech to 12 March, while President Cyril Ramaphosa’s Cabinet held discussions with National Treasury to explore alternatives. When Godongwana eventually delivered his speech, he announced plans to raise VAT from 15% to 15.5% in 2025, with a further increase to 16% in 2026. He said the second increase might be avoided if new revenue sources emerged in the interim. Godongwana acknowledged that not proceeding with the VAT hike would result in an estimated R75 billion revenue shortfall over the medium term. He added that the decision was made after extensive consultations with political parties and careful review of recommendations from parliamentary committees.

Towards the end of April, the minister said he would deliver a revised Budget Speech, now known as Budget 3.0, on 21 May 2025. This came after the budget reversal and it is likely to have significant implications for taxpayers, who will have to bear the brunt of the changes. He said National Treasury had already begun work on developing a new fiscal framework that would maintain the trajectory toward debt stabilisation, a crucial element in strengthening public finances. He said the revised Budget would abide by all established technical processes and consultations.

Market overview

Global overview

Developed market (DM) equities recorded a modest gain in April, with the MSCI World Index ending positively at 0.89% month-on-month (m/m) in US dollar terms. The month was characterised by significant market volatility, largely driven by geopolitical events, particularly US tariffs. Emerging Market (EM) equities also ended April in positive territory at 1.34% m/m in US dollars, partially attributed to US dollar weakness. Both global property and global bonds showed gains, at 0.99% m/m and 2.94% m/m US dollars. The FTSE 100 Index fell -0.25% m/m in pounds, with the decline continuing from the March figure of -2.25% m/m. The Euro Stoxx 50 Index ended at -1.80% m/m and the S&P 500 dropped by -0.68% m/m. The Dow Jones Index was the biggest detractor for the month, ending in negative territory at -3.08% m/m in US dollar terms. However, Japan’s benchmark Nikkei Index clawed back some of its March losses, ending April at 1.20% m/m in yen terms.

Local overview

South African equity markets ended the month strongly positive. The FTSE/JSE All Share Index was up 4.34% m/m in rand terms, despite earlier declines in response to US tariffs. The JSE was boosted by the easing of domestic political tensions after the finance minister scrapped the planned VAT increase of 0.5%. Property went from an underperformer in March to the biggest gainer in April, at 7.58% m/m. Industrials and Resources both ended the month up, at 2.44% m/m and 2.06% m/m respectively. Financials and Cash were both positive, at 4.61% m/m and 0.61% m/m respectively. The bond market was positive for short- and medium-term bonds in April but negative for long-term bonds, with the FTSE/JSE All Bond Index ending the month positively at 0.76% m/m. Bonds of 1-3 years were positive at 1.06% m/m along with bonds of 3-7 years at 1.78% m/m. Bonds of 7-12 years were positive at 0.77% m/m, but bonds of 12 years and above ended at -0.28% m/m. The rand was one of the few currencies that weakened against the US dollar in April at -1.15% m/m, largely attributed to uncertainty over the stability of the GNU and strained relations with the US. The rand also weakened against the euro and pound at -6.07% m/m and -4.48% m/m respectively.