A roller-coaster quarter for markets is ending with little relief, as President Donald Trump’s disruptive trade policies and rising stagflation fears drive investors toward risk aversion. For more on the global economic landscape including the broader economic factors influencing South Africa’s growth and stability, CNBC Africa is joined by Sanisha Packirisamy, Chief Economist, Momentum for more.
A roller-coaster quarter for markets is ending with little relief, as President Donald Trump’s disruptive trade policies and rising stagflation fears drive investors toward risk aversion. For more on the global economic landscape including the broader economic factors influencing South Africa’s growth and stability, we are joined by Sanisha Packirisamy, Chief Economist, Momentum. Sanisha, thank you so much for your time. So much has happened in the two and a half months, almost three months, of Trump 2.0. When you're sitting down with your team and you're trying to have a look at what the path looks like ahead, at least for global economic growth, what's in front of you? Thank you so much for having me, Nastasia. You know, Trump did warn us he was going to do a lot when he got into the presidency, and a lot he has done. If we look at the number of executive orders, you know, he's almost inching on half of what he did over his first four term in the presidency. I think if we look at the global environment, we have seen some of that optimism being pulled back on the back of some uncertainties around still the Russia-Ukraine war, the Middle Eastern tensions, but now also due to the U.S. administration and the changes around certain policies involving the trade side of things in the global economy. So we've seen that the Organization for Economic Cooperation and Development, or known as the OECD, they've actually also pared back their global growth assumptions, taking it down from around 3.3% this year, now seeing growth only at 3.1%. But not only do they see growth being a little bit lower this year, they've also pared back their growth assumption going into 2026. So I think some of these elements of protectionism are going to actually affect growth, not only this year, but we are likely to see some of the indirect impacts also hitting growth a bit more negatively into next year. We do, of course, have a divergence of growth outcomes, but the biggest one being the U.S. economy, where the growth engine was humming along quite nicely, we're now starting to see that the foundations of growth are looking a little bit more shaky than before. With that said, and as you mentioned, you know, the Trump administration heading the ground running, a lot of this uncertainty does come at a cost to global growth. And given what you've just outlined, have you had to also downgrade your global growth expectations and also taking in line or rather taking into consideration how some of the other economists have also had to walk back their U.S. growth expectations? Sure. So if we look at U.S. growth in particular, you know, we've seen on the back of the U.S. Federal Reserve also downgrading their growth expectations and quite significantly they've gone from an expected 2.1% for this year down to 1.7%. We've actually seen on the back of slower consumer sentiment, slower consumer spending. We've also seen that factory gate output has taken a little bit of a hit. And on the back of these dynamics, we've seen that growth expectations for the U.S. have come down. If we look at the Bloomberg median consensus, you know, they peaked out at around 2.3% for this year, but now most economists are looking for a growth number that's just below 2% in the U.S. economy. Now, not only has the growth expectation shifted, but the outcome of tariffs is also likely to push up costs around the world. So we've seen that the likes of the Federal Reserve have pushed up their headline inflation numbers from around 2.5% that they initially expected this year to about 2.7%. You know, the U.S. is quite a big contributor to overall global growth, but so is Europe and China. For China, we're likely to see growth at around 4.5% on the back of continued property woes. They did come out with quite a big stimulus package there. But this is not really a big bazooka approach like we saw previous in previous years with regards to the global financial crisis or the pandemic. So we think that'll be just enough to arrest the slowdown coming through from the tariff implications and a slowdown in domestic demand. I think the only region that we're really seeing some more upside surprises coming through is, of course, in Europe, where they're likely to lift the debt break that has been in place since around 2009. So with the promise of more fiscal spending comes the promise of higher economic growth in the European region. Let's talk about the U.S. in particular, because I've just thought back to the Fed press statement as, you know, Chair Powell was engaging with the journalists, but also looking at, you know, the decision that they made. And one would think that when you look at the Fed's forecast, there's a bit of a stagflationary mix coming through there. I mean, when you look at the path ahead for the Fed, how constrained is it in an environment where there's so much uncertainty, particularly coming out of the Oval Office? Nastasia, you know, you're on the money with the comment around stagflation. So if we look at the Bank of America Merrill Lynch fund managers survey, a majority of global fund managers are seeing an increasing risk of a stagflationary environment. And this is really one in which growth is going to underperform the longer term trend, whereas your inflation numbers are likely to be above the longer term trend. This is a very difficult environment for money policymakers. And so I think, you know, patience is really the name of the game for central banks around the world, where they are likely to sit on the sidelines in order to see the impact of tariffs on GDP growth, because we know that GDP growth is at risk from the implementation of tariffs. And I think also in terms of where inflation is headed, inflation, you know, around the globe has been a bit stickier than what we anticipated. And I think the Federal Reserve members have also highlighted that in their recent meeting, that inflation hasn't come down as fast as what they expected. And of course, with the implementation of tariffs, this could keep prices stickier for longer. And that means that we're likely to see higher borrowing costs relative to the scenario where there were no tariffs that were implemented in the global economy. When you look at the, I suppose, call it the Fed's predicament, if we do get into a stagflationary environment, it does pull the Fed's mandate into two opposite directions. When you're talking with the team within Momentum, which is the worst scenario? Is it the downside risks to growth in the short term, or perhaps even upside risks to inflation that would be, call it, not a great outlook? Which of the two is the worst scenario to be in? So I would say, Anastasia, that the worst scenario to be in is on the higher inflation front. I think that central banks around the world are very cautious about making a policy error, this time because we do have a higher starting point, not only for inflation, but also inflation expectations. And so if you look at households' expectations for inflation, or even the five-year longer-dated inflation expectations, these are quite elevated relative to long-term average. So the starting point of inflation this time around is a lot higher. And I think this is one of the reasons as to why global equity markets haven't done as well in this beginning period of Trump 2.0 relative to Trump 1.0. We are now operating off a high inflation base, and I think this is why central banks ultimately are a lot more cautious, because if you do get a re-ignition of inflation, it will be from a higher base. And I think that kind of problem is going to be quite a difficult one for central banks to contend with. Now that we've spoken about central banks and, I suppose, the issue that the Fed finds itself in, when you look at South Africa and the landscape locally, what does it look like, at least for 2025? Unfortunately, South Africa can't escape the global headwinds that are facing us. I think there are a number of local tailwinds, such as ongoing reform that we've seen in the energy space. So even with the recent bout of load shedding, I would say that energy supply is on a structural uplift in South Africa. We've seen a number of legislative changes in the space of logistics that will enable the private sector to operate. Some of the railway come down the line two to three years from now. We've even seen some improvements coming through for local municipalities and the likes of the water industry. However, South Africa is a small, open economy. And in this new U.S. administration, where protectionism is becoming a much bigger emphasis, we are also likely to experience some of those negative trade winds that come into South Africa. And I think South Africa's trade will be caught in the crosshairs here. We know that we are at risk of losing the African Growth and Opportunities Act, which is a preferential trade agreement for a number of products from South Africa into the U.S. market. But of course, we are also at risk for auto import tariffs. We are also at risk for universal or reciprocal tariffs. And on the back of that, that can hit our external demand quite severely. So looking at growth in South Africa, we currently have a 1.6 percent estimate for growth this year. But I would say that growth risks are definitely biased to the downside because of those global headwinds that South Africa faces. The one thing we did see when we look at U.S. consumer confidence was that, or rather U.S. consumer sentiment, was that we saw it sinking on the back of, you know, the tariff drive and what people were thinking around price expectations. What's your sense of consumer sentiment in South Africa? We saw more recently our own consumer sentiment tanking to minus 20 points. But we do need to look at the period at which that survey was conducted. So that survey came about just after our budget 1.0 take one, when the initial proposal was for a two percentage point increase in the value added tax rate. And I think that really damaged the confidence, particularly at your upper income earning levels. So I think, you know, delving into the numbers a bit more, if you look at the underlying indicators, most of the consumers were very worried about their own personal finances on the back of a more onerous tax background with an implementation of the value added tax increase. So I would say that we probably have to look at the next survey to get a more balanced view on what consumers are really feeling. I think your upper income earners were also exposed to the negative news around how the foreign affairs have become a little bit more difficult to deal with in terms of the U.S.-S.A. relations. That didn't really come through in your lower end consumer. And that is partly because of things like financial education and awareness about economic developments. But I would say that, you know, this was a little bit of a blip on the consumer sentiment survey, partly driven by when those survey data responses were actually taken. And we probably have to look towards the next survey and average the two to get a more appropriate view on consumer sentiment in South Africa. Sanisha, thank you so much for making time for us this afternoon. That was Sanisha Pakrasamy, who is the Chief Economist at Momentum.
Theme: Impact of Global Economic Uncertainty on South Africa's Growth
The roller-coaster quarter for markets is coming to a tumultuous end, with President Donald Trump's disruptive trade policies and fears of stagflation driving investors towards risk aversion. The global economic landscape is facing a wave of uncertainties that are significantly influencing South Africa's growth and stability. Sanisha Packirisamy, Chief Economist at Momentum, provides insight into the challenges and opportunities that lie ahead. Trump's presidency has been marked by a flurry of executive orders, disrupting the global environment and leading to a pullback in optimism. The Organization for Economic Cooperation and Development (OECD) has revised its global growth projections downwards, from 3.3% to 3.1% for the current year, with further implications for 2026. Protectionist measures are expected to impact growth not only in the short term but also in the coming years, affecting regions like the U.S., Europe, and China. While the U.S. economy was experiencing robust growth, recent indicators suggest a shift towards a more uncertain future. The Federal Reserve has downgraded its growth forecast for the U.S. from 2.1% to 1.7%, reflecting slower consumer spending and factory output. These developments, coupled with escalating trade tensions, are likely to have global repercussions, with inflationary pressures rising. While Europe anticipates a lift in economic growth due to increased fiscal spending, other regions face challenges in navigating the complex economic landscape. The specter of stagflation looms large, pushing central banks towards a delicate balancing act. As global fund managers foresee a stagflationary environment, concerns mount over the intersection of subdued growth and elevated inflation. The Federal Reserve finds itself in a precarious position, observing the unfolding dynamics amidst heightened uncertainty stemming from policy decisions. The prospect of higher inflation poses a significant challenge for central banks worldwide, given the elevated starting point of inflation levels. In this context, higher inflation may trigger difficult policy decisions, impacting global equity markets and economic stability. The uncertain global economic environment reverberates across South Africa, as the country grapples with both local and international headwinds. Despite local reforms in key sectors like energy and logistics, South Africa remains vulnerable to global trade disruptions. The withdrawal of preferential trade agreements and potential tariffs could hamper external demand and dampen growth prospects. The country's growth estimate of 1.6% for the year faces downward risks due to the prevailing global challenges. Consumer sentiment in South Africa reflects the broader economic concerns, with recent surveys indicating a dip in confidence. Factors such as tax policy changes and geopolitical uncertainties have weighed on consumer outlook, particularly among upper-income earners. However, a more comprehensive analysis of consumer sentiment is required to gauge the true sentiment among different income groups. Overall, South Africa's growth trajectory is influenced by a complex interplay of global and local factors, requiring agile policy responses and strategic interventions to navigate the uncertainties ahead.
"'The starting point of inflation this time around is a lot higher. And I think this is why central banks ultimately are a lot more cautious, because if you do get a re-ignition of inflation, it will be from a higher base.' - Sanisha Packirisamy, Chief Economist at Momentum"
['Global Economy', 'South Africa', 'Trade Policies', 'Stagflation', 'Central Banks', 'Consumer Sentiment', 'Economic Growth']