Global economic volatility is driven by multiple global shocks and poses significant risks to South Africa’s growth, inflation and economic stability.
It appears at first glance that the current global economic volatility can be squarely blamed on US policy shifts since the beginning of 2025. Although the role of US policy shifts in this regard cannot be denied, there are multiple overlapping forces contributing to global economic volatility rather than a single shock (such as US policy shifts). Such multiple overlapping forces include inter alia global inflation and interest-rate uncertainty, geopolitical and trade tensions, supply chain restructuring, energy price swings, high country debt burdens, climate disruptions, rapid technological change and off course policy shifts in the United States which are all in a contemporaneous fashion contributing to a less predictable global economic environment. For South Africa, as a small open economy, these external shocks quickly filter through into domestic growth, inflation, the exchange rate, investment flows and household wellbeing.
One of the most important sources of global volatility remains the uneven path of inflation and interest rates globally. While inflation has declined in some economies, it has not stabilised uniformly. Central banks therefore face uncertainty about how quickly to ease interest rates, keeping financial markets highly sensitive to new information. This matters for South Africa because global monetary conditions influence capital flows into and out of emerging markets. When global rates remain high or risk appetite weakens, South Africa often experiences rand depreciation, rising bond yields and tighter domestic financial conditions. Higher borrowing costs reduce consumption and private investment, reinforcing low growth.
Geopolitical tensions further amplify volatility by disrupting trade routes, weakening global trade growth and increasing uncertainty for businesses and investors. For South Africa, the impacts include higher import and shipping costs, weaker demand for exports and reduced investment confidence. These pressures can reduce growth while increasing inflation risks, especially when disruptions affect energy or food markets.
Energy price volatility remains a key driver of inflation and economic instability. South Africa is particularly exposed because it is a net oil importer and relies heavily on fuel for transport and production. Rising crude oil prices lift petrol and diesel prices, raising costs throughout the economy and eroding household purchasing power. This increases inflationary pressures and can delay interest-rate cuts, slowing growth further.
Global debt vulnerabilities are another source of instability. High debt levels combined with higher interest rates increase financial stress in many countries, raising global risk aversion. For South Africa, this typically translates into a higher risk premium, a weaker rand and higher cost of capital for both the government and private sector. This puts additional strain on the fiscus, as a larger share of revenue must go toward interest payments instead of development spending.
Climate change is increasingly an economic variable rather than a distant risk. Extreme weather events disrupt food production and infrastructure operations and maintenance, leading to volatile food prices and higher costs of living and doing business. In South Africa, climate shocks affect inflation, agriculture, water supply and electricity reliability, worsening cost-of-living pressures and increasing vulnerability among poorer households.
Technological disruption also adds uncertainty through shifts in labour markets and competitiveness. While digitalisation and new technologies can raise productivity and expand financial inclusion, increasing automation may worsen unemployment and inequality if the economy does not create new job opportunities fast enough. In South Africa, this risk is amplified by the already very high unemployment and skills constraints.
A major additional contributor to global volatility is policy shifts in the United States. As the world’s largest economy and issuer of the dominant reserve currency, US monetary, fiscal and trade policies shape global financial conditions. US interest-rate decisions affect global borrowing costs and investor risk appetite, with direct spillovers to South Africa’s exchange rate, bond yields, and capital flows. Meanwhile, changes in US trade policy, tariffs, or industrial subsidies can influence global demand, supply and value chains, in addition to commodity markets, thereby creating both risks and opportunities for South Africa’s exports.
Overall, global volatility affects South Africa through interconnected channels, namely exchange rate instability, imported inflation, shifting interest rates, fluctuating trade demand and volatile capital flows. These effects can reinforce one another, especially when risk-off episodes weaken the rand, raise inflation and thereby giving rise to higher interest rates. In an economy with already very high unemployment, inequality and limited fiscal space, global shocks tend to translate quickly into local hardship. In conclusion, global economic volatility is likely to remain elevated because it reflects both cyclical pressures and deeper structural shifts. South Africa cannot control these global forces, but it can reduce vulnerability by strengthening domestic fundamentals, and here especially energy supply, logistics performance, policy credibility and investment conditions. Greater resilience and effective multilateral relationships management would help South Africa absorb global shocks more effectively and improve its ability to pursue inclusive growth despite an unstable world economy.
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Compiled by: Prof CJ van Aardt and Prof PK Kibuuka
3 February 2026