Our weekly podcast by Kevin Lings:

US growth disappoints; SA’s inflation generally under control

In this podcast, STANLIB’s Chief Economist, Kevin Lings, discusses disappointing US Q4 2025 GDP growth of 1.4% q/q, which was largely due to the 43-daygovernment shutdown. Underlying growth, at 2.2% y/y, is below long-term averages. However, latest US core PCE inflation was above expectations, at 3%y/y, exceeding the Federal Reserve’s 2% target, which may deter aggressive interest rate cuts. In SA, headline CPI rose slightly more than expected in January, but at 3.5% y/y is generally under control, Kevin says.

The focus areas during the week included:

• The S&P 500 closed the holiday-shortened week with a gain of 1.1%, which helped to offset the prior week’s decline of 1.4%. Year-to-date the S&P 500 is up a modest 0.9%, although the NASDAQ 100 is down 0.9% (despite a weekly gain of 1.1%). The US equity market rallied strongly on Friday, after news that the Supreme Court had ruled to overturn the Trump administration’s sweeping global tariffs. However, tensions between the US and Iran - which pushed oil prices higher – were an area of concern for investors throughout the week.
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• The STOXX Europe 600 hit another record high on Friday, and gained 2.1% in the week. Year-to-date the index is up 6.5% (after gaining 16.7% in 2025) helped by improved earnings expectations, slightly better macroeconomic data, and investors’ desire to diversify beyond the technology-heavy US equity market. In contrast, Japan’s stock markets experienced small declines, with the Nikkei 225 down 0.2% and the broader TOPIX Index down 0.3%. The market was probably undermined by Japan’s weaker-than-expected GDP performance for Q4 2025.‍
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• SA’s All-Share Index gained an impressive 2%. There were strong gains in all the major equity sectors, mostly the Financial 15 which was up 2.5%. Year-to-date the market is up 6.2%. It is also interesting to see that the MSCI Emerging Markets Equity Index has gained 11.3% year‑to‑date, driven by technology‑heavy regions such as Korea, where stocks are up almost 38% this year, and ended the week at a record high. While a modestly weaker US dollar has provided an additional tail wind to international returns, it seems likely that global diversification will be a key investment theme this year – which hopefully starts to include SA. We will discuss this theme at the upcoming Investment Forums in Cape Town and Johannesburg.‍
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• Financial markets in mainland China were closed for the Lunar New Year holidays, which started on 16 February. They will reopen on 24 February.‍
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• The yield on the 10-year Japanese government bond fell to around 2.14% from 2.23% at the end of the previous week, as concerns about the government’s aggressive spending plans subsided. Prime Minister Sanae Takaichi, who earned a solid victory in a snap election earlier in the month, sought to reassure investors by pledging to pursue responsible and proactive fiscal policy that balances capital investment and fiscal restraint. She emphasised increased capital investment in areas including economic security, agriculture, energy, and health services.
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• News flow resulted in a modestly weaker performance by the rand and emerging market currency index, although they remained up by a solid 3.4% and 1.3% respectively in the year to date. Excluding the noise, the rand is likely to retain its underlying support from strong fundamentals. The National Budget speech on Wednesday is expected to reflect government’s focus on fiscal discipline and its intention to work towards higher sustainable economic growth.‍
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• In Q4 2025 the US economy grew by a disappointing 1.4% q/q (annualised). This was well below market expectations for growth of 2.8% q/q. The main reason for the under performance was the prolonged government shutdown that started on 1 October 2025 and lasted 43 days. According to the US Bureau of Economic Analysis (BEA), the shutdown subtracted an estimated one percentage point from Q4 2025 GDP performance. Critically, real final sales (the combination of consumer spending and gross private fixed investment) grew by a solid 2.4% q/q in Q4 2025, down from 2.9% q/q in Q3 2025. This reflects the underlying performance of the US economy if the government shutdown had not occurred. For 2025 (as a whole) the US economy grew by a modest 2.2%, which is down from 2.8% in 2024, and below the 2023 growth rate of 2.9%. It is also below the long-term average annual growth rate of 2.5%, but well above the population growth rate.‍
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• US core PCE inflation rose by a larger-than-expected 0.4% m/m in December 2025. The market was anticipating an increase of 0.3% m/m. This pushed the annual rate of core PCE inflation up from 2.8% to 3%, its highest level since February 2025. The larger-than-expected monthly increase was partly driven by higher rental costs, as well as are latively large increase in goods prices, which include any tariff-related impact.‍
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• The Federal Reserve (Fed) released the minutes of its January meeting on Wednesday, which showed that policymakers are divided on the path forward for monetary policy. The minutes indicated that, while some participants viewed additional easing as appropriate if inflation cools as expected, others acknowledged “the possibility that upward adjustments” to rates could be appropriate if inflation remains elevated. The minutes also noted that the “vast majority of participants” believe the “downside risks to employment had moderated” and “the risk of more persistent inflation remained”.‍
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• On Friday the US Supreme Court ruled (with a vote of 6 – 3) that President Trump exceeded his authority by using a federal emergency‑powers statute (IEEPA) to impose the Liberation Day tariffs. (This ruling applies to both the Liberation Day tariffs as well as the “fentanyl” tariffs.) The Supreme Court ruling did not indicate a decision on whether previously-collected import duties – which are estimated at between $130 billion and $170 billion - must be refunded. This will have to be decided by a lower court and could become a lengthy legal process. The Trump administration responded immediately to the Supreme Court’s decision by saying that it intends to achieve similar policy outcomes through alternative avenues. Soon afterwards, Trump announced a new 150 day 10% global import tariff under Section 122 of the Trade Act (which was later increased to 15%), while the administration prepares to pursue investigations that could enable tariffs under Section 301 or Section 232. Despite the potential use of tariffs through Section 301 or Section 232, the decision by the Supreme Court is a major blow to the Trump administration and limits its use of tariff as a threat or bargaining tactic. This is partly because the use of Section 301 or 232 is time-consuming to implement and/or adjust. Before the IEEPA tariffs were struck down by the Supreme Court, US consumers faced an overall average effective tariff rate of 16%,which is the highest since 1936. Immediately after the IEEPA ruling, the rate fell to 9.1%. However, after the Section 122 tariffs were imposed (eventually at 15%), the rate rose to its current level of 13.7%. If those tariffs expire in 150 days, the rate will fall again to 9.1%.
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• It appears that the US administration is considering a limited military strike on Iran to secure more substantive concessions on its nuclear programme. Trump indicated that Iran had “10 to 15 days at most” to reach a deal. The Atlantic Council has uploaded an interesting article entitled "Ten predictions for the potential US strikes on Iran".‍
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• S&P Global reported that US business activity growth (as measured by its Composite Purchasing Managers’ Index) slowed to a 10-month low in February 2026. The slowdown was driven by weaker demand, high prices, and adverse weather. However, businesses’ expectations of output in the year ahead hit a 13-month high, “adding to signs that at least part of February’s slowdown may prove temporary”.‍
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• The US National Association of Home Builders (NAHB) housing market index, which gauges homebuilders’ confidence, dropped one point to 36 in February. According to NAHB Chairman Buddy Hughes, “builders reduced their expectations for future sales as buyers report affordability challenges”. The National Association of Realtors also reported that its pending home sales index - a forward-looking indicator of home sales - fell by 0.8% in January. ‍
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• US weekly jobless claims declined to 206 000 last week, below market expectations for a reading of 225 000. On a trend basis, weekly jobless claims are averaging about 213 000 year-to-date, below last year's average of 226 000, suggesting that the US labour market remains solid. Continuing claims, which reflect the total number of people receiving benefits, edged up to 1.87 million, roughly inline with forecasts.‍
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• US durable goods orders declined by 1.4% m/m in December, although this was slightly better than market expectations for a drop of 1.5% m/m. The decline in the headline reading was driven by a 25% drop in the volatile commercial aircraft category. In contrast, core durable goods orders (excluding transportation) rose by 0.9% in December, above market expectations for a gain of 0.3% m/m. New orders for computers and related products increased by a further 3% m/m in December and are up nearly 14% y/y, suggesting that AI‑related spending remains strong.‍
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• US industrial production surged by 0.7% m/m in January 2026, well above market expectations for again of 0.4% m/m. This improvement, together with the recent very noticeable acceleration in the ISM Manufacturing PMI for January, point to stabilisation in the US manufacturing sector after several years of weakness. However, it could also reflect some pre-emptive orders, prompted by the fear of increased tariffs on the Eurozone due to the Greenland issue at the time. In that regard, the weakness in the S&P manufacturing PMI for February (released on Friday) is instructive.‍
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• Oddly, the US briefly updated and then withdrew a list of Chinese companies allegedly assisting China’s military. The Pentagon added Alibaba Group Holding, BYD Co, Baidu, and TP-Link Technologies to the list before withdrawing it minutes later without an explanation. Alibaba and Baidu rejected the designation, saying they are not military companies and that there is no credible basis for being included. The Pentagon is increasingly using the list to restrict companies’ abilities to contract with the military or to receive research funding. It also serves as a warning to US investors and could be considered a potential precursor to more punitive trade restrictions.‍
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• In January 2026,SA’s headline CPI inflation increased by 0.2% m/m, which was above market expectations for an increase of only 0.1% m/m. The annual rate of inflation slowed from 3.6% to 3.5%, which was also above market expectations for inflation to moderate to 3.4%. Importantly, core inflation rose by 0.3% in January, which was also above market expectations for an increase of 0.2% m/m. This pushed the annual rate of change in core inflation up from 3.3% to 3.4%. Although the annual rate of headline inflation has drifted higher in recent months, rising from a low of 2.8% in May 2025, it remains relatively well contained. Still, there are some upside risks, including ongoing foot and mouth disease, which has pushed meat prices higher. It is important to recognise that over the past 12 months domestic inflation has benefited from a convergence of numerous positive factors that are not all likely to persist over the next 12 months. These include a year-on-year decline in the fuel price (over the past 18 months SA’s annual inflation rate for the petrol price has average -7.3%), a reasonably strong currency (over the past year the rand has gained around 15% against the dollar), China continued to export deflation, and a weak housing market, which has kept rental inflation at around 3% to 4%. Consequently, while we still expect inflation will be contained in a range of 3% to 4% over the next 12 months, the risks are to the upside if some of these factors become less supportive. This is likely to encourage the Reserve Bank to continue to adopt a relatively cautious approach to further reductions in interest rates.‍
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• In December 2025, South African retail sales fell by a disappointing 0.4% m/m, although this follows a strong performance in the previous two months. Over the past year retail sales have risen by respectable 2.6% y/y, but are down from3.6% y/y in November. In the final quarter of 2025, retail spending grew by 0.8%, which will boost the Q4 2025 GDP performance and help to partly offset the declines in both manufacturing and mining activity. In 2025 as a whole, retail spending grew by a robust annual average of 3.7%, which reflects a combination of factors, including the benefit of subdued inflation (hence stronger growth in real disposable income), further cuts in interest rates, and significant “two-pot” withdrawals.‍
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• Various news reports (including the Financial Times) have suggested that European Central Bank (ECB) President Christine Lagarde will step down before her eight-year term ends in October 2027. This, obviously, fuelled speculation about who might be appointed as her successor. Lagarde commented that her “baseline” is finishing her ECB term but did not deny the Financial Times report. Spain subsequently became the first country to openly declare its intention to seek the ECB presidency. Its economy minister stated that Spain will “actively work to ensure it holds an influential and meaningful position” at the regional central bank.‍
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• German investors’ confidence in economic conditions unexpectedly fell in February, according to the latest reading of the ZEW Indicator of Economic Sentiment. The indicator hit a five-year high of 59.6 in January and was expected to rise further in February but instead slipped to 58.3.‍
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• Japan’s GDP grew by a modest 0.2% q/q in the final quarter of 2025, well below market expectations for growth of 1.6% q/q but up from a revised -2.6% q/q in Q3 2025. Private consumption expenditure, which accounts for more than half of Japan’s GDP, slowed from 0.4% q/q in Q3 2025 to only 0.1% in Q4. Exports dropped modestly, reflecting a less-than-feared impact of US tariffs.‍
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• Japan’s nationwide core CPI rose by 2% y/y in January, in line with market expectations but down from 2.4% y/y in December 2025. Headline inflation moderated from 2.1% to 1.5%, which is the slowest rate of growth in two years. The slow down was partly driven by softer food price inflation and lower fuel prices. In addition, the government has pursued various fiscal measures aimed at easing cost-of-living pressures, which appear to be having a positive effect.
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• According to the International Monetary Fund’s (IMF) recent Article IV report on China, it expects the economy to grow by 4.5% in 2026, which is up 0.3 percentage points from its October forecast but below the 5% growth achieved in 2025. The IMF acknowledged that China’s economy has been resilient to shocks but flagged increased challenges to its historical growth model. The IMF said transitioning to a consumption-led growth model should be the overarching priority. While the organisation welcomed the focus of China’s 15th Five-Year Plan on boosting consumption, it called for a comprehensive and more forceful response that combines increased macro economic policy support with structural reforms.‍
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• China recently released detailed provisions for its new value-added tax (VAT) law, including raising the VAT rate on telecommunication services to 9% from 6%. The move comes as authorities adjust tax policy amid slower economic growth and persistent deflationary pressure. Major telecom providers in China warned that the higher rate could impact revenue and profitability.