Challenges, Changes, and New Horizons

This year has been packed with events that are sure to make it one for the history books. Around the world, many elections took place, particularly in Europe, where centre-right and far-right parties made significant gains. Notably, elections in Germany, the Netherlands, Austria, and France saw right-leaning parties increasing their seats, marking a notable shift. Germany’s AFD party pushed for early elections following their governing coalition’s collapse, while France recently faced a similar situation as the French government just collapsed this week. In the Netherlands, Geert Wilders’ Party for Freedom emerged victorious despite past ridicule.

On the other hand, the UK is somewhat of an outlier in this rightward trend. It appears to be in a challenging position with Prime Minister “Two-Tier” Keir Starmer, who is enacting unpopular laws that undermine free speech amid ongoing mass migration while inheritance tax on farms and farmers exacerbates his political and popularity dilemma even further.

In the U.S., the election on November 5, 2024, resulted in former President Trump’s landslide victory, winning both the electoral and popular votes. This success enabled him to gain control of the House and Senate, allowing for swift cabinet appointments.

Gold prices experienced a notable increase over the past year, driven by heightened international tensions, particularly due to the war in Ukraine and conflicts in the Middle East. Investors often turn to gold as a safe haven in uncertain times. Interestingly, following Trump’s election, gold prices dipped slightly, as his administration is expected to work toward de-escalating these conflicts.

The U.S. stock markets rallied after the election results, with Bitcoin’s price skyrocketing from around $70,000 to $98,000. Many analysts were surprised by this jump, despite Trump’s known pro-business, pro-crypto stance.

All these international developments set the stage for an exciting 2024, and South Africa’s domestic landscape was equally dynamic in terms of politics and economics. The year started as many recent years have, with ongoing loadshedding and a degree of political instability. The governing party appeared to realise that change was necessary, especially with increasing demands for accountability amid financial mismanagement. As South Africans grappled with high inflation, rising living costs, high interest rates, and soaring unemployment, the calls for change grew louder.

Just before the national elections in May 2024, loadshedding finally eased, but many viewed this as a political tactic to secure more votes. Fortunately, loadshedding has since been eliminated, helping to restore confidence in the economy.

The economic growth report for Q4 2023, released in March 2024, indicated a modest growth of 0.3%, and the annual growth rate for 2023 was 0.7%. However, the economy stagnated in Q1 2024, with the second quarter expanding by just 0.3%—too meagre to create significant job opportunities.

Following the elections, it was evident that the ANC party lost a substantial number of votes, forcing them to form either a coalition government, or Government of National Unity (GNU), with help from opposition parties. This coalition was seen positively by the market, leading to an appreciation of the rand against other major currencies. Alongside this, consumer and business confidence began to improve.

While inflation remained a concern for the South African Reserve Bank (SARB), international oil prices started to decline after June, while the Rand strengthened further given the positive view the market had on the newly formed GNU. The lower oil prices and eased loadshedding helped reduce inflation significantly, allowing the MPC to lower interest rates by 25 basis points in September, followed by another similar reduction in November 2024.

Despite high consumer indebtedness affecting overall demand, the mining, manufacturing, finance, and trade sectors experienced growth in Q3 2024. This positive trend is expected to continue into the fourth quarter, with forecasts showing growth rates for Q4 2024 at 1.4% and 0.4% for Q1 2025, leading to an anticipated annual growth of 1.7% for 2025.

Looking ahead, international commodity prices, along with global political and economic dynamics, must be monitored, particularly regarding U.S. involvement in ongoing conflicts and the effects thereof on the global economy and international supply chains. How the new Trump administration addresses these issues could significantly impact commodity prices, global inflation and international economic stability.

Ultimately, a stable exchange rate, lower international oil prices, and improved economic conditions bode well for inflation expectations and interest rate decisions by the MPC in early 2025. Should interest rates decrease further, this could stimulate demand and promote faster economic growth.

Let’s hope that the GNU lasts its full term, allowing South Africa to capitalise on the renewed hope and confidence that it desperately needs to grow and create jobs for its citizens.