South Africa’s economic outlook has improved significantly since last year, with inflation easing, load-shedding ending, and a peaceful general election ushering in a Government of National Unity.
However, global uncertainties, including geopolitical shifts and economic policies under the newly re-elected Donald Trump administration, pose potential risks to the country’s progress in 2025.
Local Progress
Victoria Reuvers, managing director of Morningstar Investment Management, highlighted South Africa’s strides:
- Inflation and Interest Rates: Global inflation appears to be under control, and declining interest rates are easing the cost-of-living crisis for South Africans.
- Productivity Gains: The absence of load-shedding since March 2024 has boosted productivity and sentiment, benefiting company earnings and GDP growth.
- Governance Improvements: Efforts by financial authorities may lead to South Africa’s removal from the grey list in 2025, enhancing investor confidence.
However, as Reuvers noted, global instability, particularly stemming from the U.S., could derail this momentum.
Impact
Donald Trump’s return to the White House has reignited concerns over the U.S.’s global economic policies, including tariffs, debt, and inflation.
Fragile Strength
Adriaan Pask, chief investment officer at PSG Wealth, highlighted structural vulnerabilities:
- Rising Consumer Debt: Credit card debt has soared to $1.5 trillion, a 50% increase since 2021.
- Declining Savings Rates: The U.S. savings rate has halved to 4%, signaling greater reliance on credit.
- Federal Debt Spiral: U.S. government debt now exceeds $36 trillion, with annual interest payments surpassing $1 trillion, outpacing defense spending.
These issues could undermine global economic stability, with South Africa’s export-driven economy particularly vulnerable to external shocks.
Tariffs
Trump’s “America First” policies, including proposed tariffs of 10-20% on imports and 60% on Chinese goods, could harm global trade. Allianz estimates South Africa’s exports to the U.S. could shrink by $4 billion, adversely affecting sectors like car manufacturing, mining, and agriculture.
However, Alan Siow of Ninety One suggests that while tariffs could create turbulence, their rollout may be gradual to avoid market volatility, providing businesses time to adapt.
Inflationary Trends
While global inflation has recently eased, experts warn that structural factors could drive renewed inflationary pressures:
- Rising Debt Levels: Growing government debt in developed markets could fuel inflation.
- Geopolitical Competition: Increasing rivalry among major powers may disrupt supply chains and elevate costs.
- Capital Scarcity: A new era of higher long-term interest rates and volatile inflation may emerge.
Philipp Wörz of PSG Asset Management compared these dynamics to the inflationary pressures of the 1970s, cautioning against complacency. Similarly, Rashaad Tayob of Foord highlighted the resurgence of factors such as fiscal overspending and supply constraints that initially triggered inflation in 2021.
Opportunities
South Africa stands to benefit from internal improvements, such as enhanced productivity and better governance. However, its reliance on exports and susceptibility to external shocks, including U.S. economic policies, global inflation, and geopolitical instability, underscore the need for vigilance.
As Reuvers aptly put it, “When America sneezes, the world catches a cold.” For South Africa, maintaining its economic gains will require careful navigation of global headwinds.
SOURCE – LINK
FAQs
What is South Africa’s current economic outlook?
Improved, with no load-shedding and easing inflation.
How could U.S. policies affect South Africa?
Trade tariffs and U.S. instability may harm exports.
Will global inflation remain low?
Experts warn of potential resurgence due to structural issues.
How much is U.S. consumer debt?
$1.5 trillion, a 50% increase since 2021.
What sectors could U.S. tariffs impact in South Africa?
Car manufacturing, mining, and agriculture.
