By Johann Els
Donald Trump has secured the presidency of the United States for a second time, marking a remarkable return to power after a tumultuous first term.
His victory over Vice President Kamala Harris has ushered in an era of uncertainty and prompted widespread discussion about the potential economic implications of his policies.
My best-case scenario includes a soft landing in the US, further easing in inflation, further rate cuts, and a somewhat weaker US dollar.
That would generally be good for emerging markets, emerging market currencies, and South Africa, as well as the rand, which under that scenario would strengthen. Trump’s policies wouldn’t be good for that.
His policies regarding trade tariffs would mean higher consumer goods prices. His immigration policy would limit labour supply and thus higher wage and salary pressures in the US, leading to higher inflation. Tax cuts would mean a higher budget deficit and thus upward pressure on interest rates.
The timing and implementation of these policies are critical factors. It all depends on how quickly this will be implemented. I still expect further US rate cuts over the next six months, but if his policies are implemented strongly and quickly, then there will be upward pressure on inflation. The Federal Reserve (Fed) might have to stop cutting rates and will likely start hiking rates—this is sometime in the future, perhaps late next year into 2026.
For now, the Fed signalled on Thursday that they will continue to cut rates for the immediate future in line with softer growth and easing inflation. Jerome Powell indicated that the Fed will wait until policy changes have been enacted, before they will model the potential impact on the economy (growth, inflation, interest rates, and the US dollar).
Only then will they react. At the time of writing, control of the US House of Representatives has not yet been determined and a Democratically controlled House might act as a brake on the worst of Trump’s policies.
These policies and higher rates in the US will likely mean that the dollar will not weaken as much as I currently expect and, in fact, might strengthen. The opposite side of that coin is that Trump actually wants a weaker dollar. So there's lots of moving parts in this equation.
We’ve seen that the rand has weakened somewhat in anticipation of Trump’s policies, but I think it is too quick to judge how quickly that will be implemented, how quickly this will work its way through. I think current market reactions are knee-jerk and might not last. However, we need to watch this going forward.
Investors must remain steady and consult with their advisers. For now, stick to your investment plan. Do not do anything drastic. Speak to your financial advisor. I still think that there's going to be a somewhat weaker US dollar over the next six months, the rand will strengthen, not only because of a weaker dollar but also improved South African fundamentals, less SA-specific risk, political risk and less fiscal risk.
It means lots more volatility over the next few months as we continue to see how policies are being played out. Even when implemented strongly and efficiently over relatively short periods of time, Trump's policies could be detrimental in terms of reaction.
I also consider the international ramifications, particularly concerning China. Because tariffs will hurt the Chinese economy, the share of Chinese exports going to the US has declined from 19% in 2017 to around 15%. The Chinese economy has adjusted a little bit; it's not the severe impact that it would have been four or five years ago. The Chinese authorities will likely stimulate the economy significantly over the very short term, it could be within the next three to six months.
There will be some counteracting forces at play in terms of trying to limit the impact of Trump’s policies in the rest of the world.
Johann Els is the group chief economist at Old Mutual.
BUSINESS REPORT