Investment experts are generally more optimistic about South Africa than this time last year, when the economy was under enormous strain, but are fearful that external forces might derail any economic progress we make in 2025.

Commenting in mid-December, Victoria Reuvers, managing director of Morningstar Investment Management, remarked on the change in South Africa’s fortunes.

“Inflation globally appears to be under control, and we have seen central banks around the world start to cut interest rates. Lower interest rates are good for financial markets, but more importantly, they are good for every South African, as lower interest rates and lower inflation help to ease the cost of living crisis.

“We have not had load-shedding since March 2024, and it’s incredible to see the impact this has had on both productivity and sentiment. Should we remain in an environment of no load-shedding, you are likely to see an uptick in both company earnings and GDP growth, which will ultimately be favourable for our local market.

“Our general elections were not only fair but accepted, with a peaceful transition of power from a ruling party that has had the majority for 30 years to a Government of National Unity that appears to be working. We have also seen a colossal effort from the Financial Intelligence Centre and Financial Sector Conduct Authority to ensure processes and procedures are in place to hopefully get us removed from the grey list in 2025,” Reuvers said.

But while South Africa seems to be in a better place than a year ago, there are darker economic undercurrents globally, and the geopolitical environment is worryingly unstable, particularly after the re-election of Donald Trump to the US White House. You know what happens when America sneezes…

The world according to Trump

The political swing back to Trump may be attributed to widespread voter dissatisfaction mainly over two things: consumer spending power, which had declined significantly owing to the higher inflation and higher interest rates of the post-Covid years, and immigration. Putting aside the immigration issue, are economic conditions for the average US voter likely to improve under the new administration? And how will Trump’s policies affect South Africa?

Adriaan Pask, chief investment officer at PSG Wealth, also writing at the end of last year, highlighted the paradox of the US economy: outward strength, but underlying vulnerabilities.

“The narrative has been largely positive, with economic growth holding steady, inflation appearing manageable, and unemployment figures remaining low. On the surface, these metrics have painted an encouraging picture. However, a closer examination of consumer debt, savings, and corporate vulnerabilities uncovers underlying cracks that could reshape the economic outlook,” he says.

“One of the most pressing concerns lies in the escalating levels of consumer debt. Credit card debt in the US has surged to an unprecedented $1.5 trillion, marking a 50% increase since 2021. At the same time, the US consumer savings rate has halved to around 4%, from a historical average of 8%. This higher reliance on credit is unsustainable in the long term,” Pask says.

The US federal government’s debt problems, which are well-known, are equally unsustainable: it owes US$36 trillion, which is 123% of GDP (in contrast, South Africa’s debt is currently 75% of GDP). The gap between spending and earning, known as the budget deficit, widens every year, with more and more going towards servicing debt – annual interest payments have risen to over US$1 trillion, more than is spent on defence.

Few analysts believe Trump can reverse what is essentially a debt spiral, even with the enthusiastic assistance of Elon Musk and his Department of Government Efficiency.

On Trump’s “America First” policy, Alex Tedder, co-head of equities at Schroders, says that, in a nutshell, it will mean less globalisation, weaker alliances, and more uncertainty. He says that if Trump proceeds with his policy of imposing 10% or 20% tariffs on all imports and 60% on imports from China, “the effects will be dramatic and will manifest as a direct and regressive tax on the US consumer and the impact will be inflationary”.

News reports quote German insurer Allianz as estimating that South Africa’s exports to the US could shrink by as much as $4 billion (R72 billion) this year and next if Trump enacts sweeping tariffs as pledged. “This scenario would disproportionately impact industries already under strain, particularly car manufacturing, mining, and agriculture,” Allianz says.

However, Alan Siow, co-head of emerging market corporate debt at Ninety One, says that, while potentially creating some turbulence, a new US tariff regime may not be the existential threat that some might fear. Siow points to the first Trump administration, when increased tariffs on China had a muted economic impact and, despite threats, no major tariffs or border closures between Mexico and the US were ultimately implemented.

“Even if the sequel follows a different plot line, any tariffs implemented by the second Trump administration would likely be rolled out gradually, driven by a desire to minimise market volatility and enable businesses to adapt and adjust their supply chains accordingly,” Siow says.

A word on inflation

While inflation is currently trending lower, it would be unrealistic to expect a return to the pre-pandemic low-inflation era.

Philipp Wörz, fund manager at PSG Asset Management, says: “We believe a new era is emerging characterised by capital scarcity, higher long-term interest rates and more volatile inflation. Despite these dynamics, market pricing for expected inflation has returned to pre-Covid levels, potentially overlooking rising developed market debt, intensifying geopolitical competition, and chronic underinvestment in the real economy. History may not repeat, but it often rhymes. As in the 1970s, ignoring the potential for renewed inflationary pressures could have significant implications for asset prices.”

Foord portfolio manager Rashaad Tayob believes a resurgence of inflation is a distinct possibility. “While many people think the inflation dragon has been slayed, the forces that drove it in 2021 – such as supply constraints, monetary easing, and fiscal overspending – are reappearing, albeit in different forms,” Tayob says.

*Hesse is the former editor of Personal Finance.

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