Investment Perspectives – Global and Local economic performance in Q2 2025

Growth is expected to slow significantly this year, according to multiple international organisations.

The main cause is the ongoing trade war between the United States and its major trading partners, creating a climate of uncertainty, and dampening investment and consumer confidence.

Highlights in Q2 2025 saw Central banks, including the SARB, cut interest rates, while the US Fed stayed on hold. Fixed income markets shifted focus from easing to debt sustainability, as the US readied Trump’s landmark bill involving cutting taxes and healthcare spending and increasing borrowing.

Towards quarter-end, Israel attacked Iran and convinced the US to join the war. Initial fears of a major escalation of conflict in the region quickly died down following a ceasefire agreement.

Also, during the quarter Cyril Ramaphosa met with Donald Trump at the White House, in an unsuccessful attempt to strengthen their relationship. The quarter ended with the Democratic Alliance backtracking on fresh threats to exit the GNU.

Global
In April the IMF lowered its global growth forecast by 0.5% to 2.8% for 2025, in large part due to the halving of its previous forecast of US growth to 1.8% for the year. The downward revision reflects concern about the negative shock of rising trade barriers and their impact on economic activity worldwide.

For now, the US economy appears to be holding up better than expected, and prominent institutions have been lowering their odds of a recession. Data is however mixed, while the true impact of the tariffs is difficult to untangle, given the “front-running” of tariffs that has taken place.

The global inflation outlook is as murky as the economic growth outlook, but for now the inflation trend remains largely down (outside of a few exceptions). The US Fed is concerned that the tariffs will lead to higher prices near term, hence their reluctance to ease policy too quickly, however, some argue that any tariff shock should prove transitory.

South Africa
Coming into the year there were hopes that political stability, accelerated reform and increased privatisation, improved energy supply, higher confidence, and lower interest rates might kickstart a meaningful turnaround. Unfortunately, this has thus far remained elusive and arguably less probable near term given the emergence of global risks.

During the quarter National Treasury and the SARB trimmed their 2025 growth forecasts for SA, to 1.4% and 1.2% respectively, though both remain more optimistic of the IMF’s 1.0% prediction. Inflation in SA has been well-contained, printing below 3% for 5 of the last 8 months. The runway was therefore clear for the MPC to cut rates again in May, which was its fourth cut this cycle. The SARB has arguably been slow to cut, but they have been mindful of external risks. This quarter we saw an example of one such risk, in the form of Israel’s attack on Iran, which briefly threatened to send oil prices significantly higher.
Despite the setback earlier this year, the National Budget was eventually tabled, and encouragingly the GNU has held. We have yet to see a credible path to improving the debt trajectory however, so our sense is the fiscal health outlook remains unchanged for now.

Outlook
Looking ahead, the combination of mixed macroeconomic data, erratic US policy and an increasingly polarised world gives rise to a wide range of potential outcomes going forward. And the fact that markets have learned to take Trump’s threats with a pinch of salt has added a further layer of complexity.