Global trade tensions and a potential VAT hike threaten South Africa’s inflation slowdown, while a delayed national budget adds to economic uncertainty.

Global trade tensions and a potential value-added tax (VAT) hike in South Africa could undermine two years of slowing inflation, the country's central bank governor warned on Tuesday.

Speaking on the sidelines of a meeting of G20 finance officials in Cape Town, Lesetja Kganyago, Governor of the South African Reserve Bank, highlighted the risks posed by uncertain trade conditions and retaliatory tariffs. He noted that such developments could negatively impact South Africa by tightening global financing conditions and affecting the country's export performance.

South Africa's G20 presidency has been overshadowed by growing concerns about a potential global trade war, particularly since US President Donald Trump returned to the White House last month. This has added to the uncertainty surrounding the international economic landscape and its potential consequences for South Africa.

Japan's finance minister has withdrawn from this week's G20 finance meeting to focus on passing next year’s budget, while US Treasury Secretary Scott Bessent has also chosen to stay away, citing a dispute between the Trump administration and South Africa.

Lesetja Kganyago emphasized that heightened uncertainty stemming from major economies’ trade measures is a significant factor in the current economic climate.

"One thing looming large is elevated uncertainty by some of the trade measures taken by major economies," Kganyago told Reuters news agency in an interview.

"A combination of those could feed into the domestic price formation process and create a challenge for us where you have both a slowing global economy and a rising inflation profile at the same time," he added.

Annual consumer inflation in South Africa has been on the rise for two consecutive months, reaching 3.0% in December. However, it remains at the lower end of the South African Reserve Bank's target range of 3% to 6%.

The central bank began reducing interest rates in September last year and has implemented three consecutive 25-basis-point cuts so far. Despite this, some analysts believe the bank may pause its rate-cutting cycle due to deteriorating global economic conditions and emerging domestic risks.

Further complicating the economic outlook, South Africa's national budget was postponed last week for the first time in its post-apartheid history. The delay was caused by a last-minute disagreement within the ruling coalition over a proposed 2-percentage-point VAT increase, which would have raised the rate to 17%.

Finance Minister Enoch Godongwana is now expected to present a revised budget on March 12, with the VAT increase no longer included in the proposal.