Macro Pulse Episode 3

Welcome to the third episode of MacroPulse. As we get closer to the end of 2024, we are starting to think about 2025 and how the macro environment could be different next year relative to this year. And one thing one way that you can think about it is thinking about 2024 as a political year, whereas 2025 would be a year of policy. In 2024, about 50% of the world’s population voted. And in many cases, they voted against the incumbent.

And the reason for that was because people were fairly unhappy with the economy. In particular, unhappy with the high level of prices in the economy. Now that is a very important consideration for 2025 in that policymakers simply do not have the freedom to implement policies that will eventually become inflationary. Otherwise, they will get voted out. So when we think about 2025 and the potential policies stemming from The US and particularly from Trump, Relative to 2024, which was just a year of focusing on monetary policy, we had to focus on inflation dynamics that’s coming down.

Although the growth negative policies, in particular, immigration and tariffs, could be released early in his term, while fiscal policy or tax cuts could only come in a little bit later, impacting the economy positively only in about 2026, maybe further onwards. So we actually see a little bit of a potentially growth softening early on in his term. In terms of his picks, because we have to wait until the inauguration in January 20, we can only look at his picks at this stage, the people that have chosen for his current administration. What we can gauge from his current picks is that in many terms, those policy picks or individuals are policy hawks. So when it comes to China in particular, we do believe that there will be a key focus under the trade with China.

And then many of these peaks are also fairly unconventional, people that don’t have the traditional political experience, which means that, yes, there could potentially be a lot of change, but there could also be some policy mistakes that comes through. So in 2025, again, I think we will see a lot of policy uncertainty, at least in the in the first part of this term. This obviously makes for a very exciting year and a year in which we’ll have to to guide in trying to navigate these new policy dynamics as it impacts the the overall economy. Combined with that, we’re all still sitting with the foreign policy or geopolitical risks that’s out there in terms of The Middle East, as well as what’s happening between Ukraine and Russia at this stage. Closer to home in South Africa, we do think that Trump’s election as the president will also impact potentially our trade.

But on this front, we actually got pretty positive news over the last week. So Abraham Rasul, he has now been selected to become the new ambassador to The US sitting in Washington DC, which we think is quite significant. He has also been the ambassador in The US under the Obama administration between 2010 and 2015. And during that period, he’s also had to work with republicans, which as part of that period, had the the house as well as the senate. So he is experienced in working across the aisle.

And in an interview recently with him, he did stress the fact that with The US and in particular with with Republicans, you have to be much more transactional and less ideological. And so we think this pragmatism, and his choice to become the new ambassador in The US is actually going to work in favor of South Africa. We are still at risk, potentially, of broader tariff hikes. 10 to 20% that the that Trump has proposed on all countries around the world. And we are still at risk potentially of South Africa being used as an example, due to our stance against, in in Ukraine, as well as our stance in Israel, that will be used as an example of a country that doesn’t fit or doesn’t align specifically with the ideology of The US.

But we think those risks are somewhat, lower than potentially a central case in which a go will be extended for another, few years. Also, on the local front, we learned that S and P Credit Ratings Agency has improved our outlook from stable to positive over the last week, and that came slightly as a surprise. What it means effectively is that the ratings agency is saying that there’s a one in three chance that SSA’s credit rating can improve over the next twelve months. This comes on the back of increased fiscal dynamics, so there’s a better clear path towards fiscal consolidation. S and P also said that they see that the GNU is working.

It brings some stability, and it could potentially lead to some reforms in the economy that could improve the growth overall growth dynamic in the economy. So what we are seeing is that after the elections earlier this year, we are still seeing a path of policy reforms taking place, which could ultimately lead to to growth and which is reducing the country’s risk premium overall. And we see that playing out in the bond market, and we’re seeing that playing out also in our, grid default swaps. Then on the inflation front and on the monetary policy side, the SARB has decided to cut rates again by 25 basis points. So this is the second cut that we’ve seen in this cycle.

But the SARB remains very cautious due to all the global uncertainties that’s still out there. Inflation has also now come down to about 3%, which does give the soft scope to ease more during the cycle. We believe that more rate cuts, along with the fact that inflation is coming down, in particular fuel inflation or fuel prices have come down, will provide some boost to the consumer. You add to that the fact that the two part system has also led to some withdrawals that puts more money into people’s pockets. We’ve seen consumer confidence starting to rise, and you can see that play out in how vehicle sales have improved just recently.

And so we think the consumer is starting to look better from a very low base and that those dynamics will continue to support the economy in 2025. So on the local front, we continue to see some improvement in the dynamics, or whereas on the global front, there is some whiteboards ahead of us in the next few months as we need to guide and navigate some of the policy uncertainties that’s out there at this stage. That’s all for this week. All the best for next week, and see you again soon.