George Herman, Citadel’s Chief Investment Officer.
Despite uncertain global economic times, the outlook for the South African economy remains positive.
This was revealed by the wealth management group Citadel at a presentation to clients on the outlook of the country’s economy, on Thursday.
George Herman, Citadel’s Chief Investment Officer, said the country’s markets had responded positively to the Government of National Unity (GNU), adding that he expected interest rate cuts of more than 1% in the next year and Gross Domestic Product (GDP) to possibly reach the 2% mark.
Herman said: “The GNU was the best case scenario for the markets and economy, and financials have responded well. Previously the financial markets had a high risk premium before the 2024 elections and after the formation of the GNU, the risk premium reduced, equity prices went up and the rand became stronger. It was good news all around.”
Currently, said Herman, the economic outlook was positive. “Despite Gross Domestic Product (GDP) slowing down in China and America, China‘s growth forecast is down to 4 percent and America’s forecast is down to 2.5 percent. The reason for America's slow growth is that they have suffered from high interest rates, with consumer spending coming under strain.
“We can expect lower growth globally for the next three years. However, South Africa's GDP growth in recent years was at 1.5 percent, we now expect it to increase by 1.7 percent and hopefully reach the 2 percent mark. This will also improve unemployment.”
Herman added that the amount of conflict that is taking place in the world is concerning, particularly in the Middle East and Ukraine.
“The conflict in the Middle East has expanded, with Israel spreading its attacks to Lebanon. We also have the conflict between Russia and Ukraine which is still ongoing. In actual fact globally this is the most conflict we have seen since World War II. In South Africa we are in a good situation because we are not involved. However, there is concern, especially if the conflict escalates and if America had to get involved, “I have no doubt global growth would be affected negatively and that would affect us.
He said if the upturn that the country is experiencing is lost, commodity prices would drop. “It would be bad for South Africa as we are economically sensitive to global factors,” said Herman.
Herman added that inflation is currently under control, adding that there are no major cost pressures.
“The oil price has seen a slight increase due to the Middle East tension but this is not a major increase. Oil is still lower than it was at the same time last year. Food inflation is not under any immense pressure and if things continue in this way can expect the interest rate to be cut by close to 1.5 percent in the next year.”
Herman said he did not expect Brent Crude oil to jump above 80 dollars a barrel.
“The price did jump recently to close to 80 dollars due to Iran getting involved in the Middle East conflict but it has since dropped back to the mid 70 dollars. I do feel that there’s not a huge demand for Brent Crude oil because of global economies’ GDP growth being lower, so that will keep the price below 80 dollars. So there won’t be any major increases in the fuel price and it is also good news for us in South Africa as it won’t drive up inflation.”
Herman added that consumers with extra money should invest it in retirement plans.
“You need to invest money in long term investments, as you need to have money for retirement. Buy growth assets for the long term and it will serve you well in your retirement.”
The Mercury
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