Finance

Watch out, South Africa

Professor Waldo Krugell from the North-West University warned that “bad outcomes” might be on the horizon for South Africa after Donald Trump took office.

Donald Trump was inaugurated as the 47th president of the United States of America (USA) on Monday, January 20, 2025.

On his first day back in office, Trump signed a series of executive orders, signalling he was acting against things he deemed negative.

He declared a national emergency on the Southern Border, designated criminal cartels as terror groups, and designated cartels as foreign terrorist organisations.

He also directed the United States’ withdrawal from the Paris Climate Agreement and the withdrawal from the World Health Organization.

Krugell warned that South Africa’s economic welfare, like that of most other global economies, is not on Trump’s list of priorities.

“Trump has never shied away from his rhetoric of America first, second and third,” Krugell said.

There has been much speculation about what Donald Trump’s second presidency of the USA will mean for South Africa and our economy.

“Most comments are about his trade policy and the possibility of tariffs on imports into the USA. This is especially true of trade with China and Mexico,” he said.

There is also talk of a general tariff for the products they import. The good news is that this should not have a significant impact on South Africa’s export competitiveness.

The greater danger is that the Trump administration will pay little attention to the rules of the World Trade Organization.

“It will affect us if they simply decide to, for example, charge additional tariffs on steel, cars, or citrus,” Krugell said

“A much more significant impact would be how his policies affect economic growth, employment, government debt, inflation, and interest rates in the USA.”

These issues will spill over into South Africa’s exchange rate and interest rates. For example, import tariffs will increase inflation.

“If his pro-business policies accelerate their economic growth, it will increase inflation,” Krugell said.

“If his deportation immigration policy shrinks their labour force, it will increase wages, which increases inflation.”

Higher inflation will keep interest rates high and the dollar strong. This will have a global economic impact.

“If his tax relief plans increase their national debt, it will also keep interest rates high. These are bad outcomes for South Africa,” he said.

Krugell explained that South Africa’s economy is barely growing and has very little inflationary pressure.

“We want to cut interest rates further but will not be able to if USA rates remain high and the rand-dollar exchange rate is weaker,” he said.

Maarten Ackerman’s views

Maarten Ackerman, chief economist at Citadel

Maarten Ackerman, chief economist at Citadel, said subdued market reactions showed that many of Trump’s anticipated policies have already been priced in.

These include the expectations for more fiscal spending, which is evident in rising United States bond yields.

However, other proposed policies, such as trade tariffs on China, could create ripple effects for emerging markets like South Africa.

“Trade wars could weaken global growth and pressure the rand, but aggressive Chinese economic stimulus could benefit South Africa as a key commodity exporter,” he said.

Ackerman also flagged risks related to the African Growth and Opportunity Act (AGOA), which underpins SA’s automotive sector.

“A reduction in AGOA benefits could harm one of South Africa’s few growing manufacturing sectors, with significant implications for Gross Domestic Product (GDP) and jobs,” he said.

Trump’s fiscal policies will likely strengthen the US dollar, challenging South Africa’s growth prospects and putting upward pressure on inflation.

Ackerman called for structural reforms in energy, infrastructure, and business efficiency to attract investment and build resilience.

Despite risks, Ackerman sees opportunities in new global trade patterns and highlights the importance of a diversified investment portfolio to mitigate volatility.

“With the right reforms and strategies, South Africa investors and businesses can navigate uncertainty while positioning for growth,” he said.

Newsletter

Top JSE indices

1D
1M
6M
1Y
5Y
MAX
 
 
 
 
 
 
 
 
 
 
 
 

Comments