#BizTrends2025: Local and global economic outlook for 2025 - the "year of Trump risk"

Source: Supplied. Mike van der Westhuizen, portfolio manager at Citadel.

Right now, Trump policy is the biggest known-unknown of 2025. The big question around US policy is whether the bark is bigger than the bite. What we do have control over is how we manage the systemic issues in the SA economy – and this is where our new Government of National Unity (GNU) needs to act.

Where SA can make positive strides in 2025

South Africa’s economic growth is expected to average around 1.8% per annum over the coming years, but growth closer to 3% is required to sustainably grow the country out of its unemployment crisis and shaky but improving fiscal position.

To turn the tanker around, it is time for the massive uplift in sentiment towards the new GNU to be turned into real action. While many departments are sailing ahead with new and improved initiatives, actual economic progress has been mediocre. Government must now start walking the talk in a more meaningful and impactful way.

In terms of energy security, the break in load shedding has been an immense tailwind. More needs to be done to ensure longer-term energy security. Fixing the rail and port issues is critical to our export sector and has cost foregone trade revenue.

Other issues like water security and decay at municipality level are also problems that require urgent attention. Policy execution has hamstrung progress in the past and the GNU now has the perfect opportunity to prove the doubters wrong.

While South Africa has experienced a period of low inflation, energy prices are still elevated, and global food inflation is increasing. SA inflation should remain ‘well behaved’, which gives the South African Reserve Bank (Sarb) room to cut interest rates twice or thrice in 2025.

Two to three US rate cuts expected in 2025

We expect US inflation to remain above the 2% central bank target. The US Federal Reserve’s (Fed’s) reaction function will depend on the combination of inflation and unemployment. With some growth slowdown and inflation that is not expected to reaccelerate aggressively, the Fed could cut rates two to three times this year. The market awaits more clarity on Trump policy and its potential impact on the Consumer Price Index (CPI).

The Big unknown: How Trump's US will impact the global markets in 2025

Citadel is expecting moderate slowing in global economic growth in 2025, while global markets could experience heightened volatility over the next few weeks due to "Trump policy risk". Meanwhile, a strengthened dollar will temporarily push down the rand, which could stabilise at around a “fair” R19 to the dollar.

Looking at offshore investment, the US is still riding a two-year high off its exceptionally powerful equity market. Earnings expectations on US technology, in particular, are relatively high and leave little margin for disappointment this year. Outside of technology, there are early signs of a broadening out in US ex-tech. The team still believes US equities are more favourable than developed market ex-US for the time being.

How China may fare in 2025

The Chinese equity market is something to keep an eye on. Should China stimulate its economy further, as we expect, there could be a decent upside for emerging markets (EMs). Their fate, however, relies on a weaker US dollar. In the short to medium term, we believe the dollar remains relatively strong and so while EM valuations are favourable, the catalyst to unlock this is ultimately the fate of the US dollar. The same can be said for most non-US assets.

China will watch Trump’s policy announcements before shooting the proverbial bazooka on more stimulus. A Chinese economic resurgence will benefit Europe, a big trading partner, and South Africa, through the resources channel.

Diversify to survive 2025

The Trump comeback will likely bring back unusual and ambiguous methods of announcing decisions which will heighten volatility. This calls for well-diversified portfolios and good tactical asset allocation and stock selection. Volatility presents opportunity. This year will favour those who manage risk well.