US economic growth: sturdy but unexciting
On the face of it, US annual economic growth, at around 2-3% a year, looks comparatively strong for a developed economy. Latest labour market data shows there are no job losses. However, longer-term data also shows that the Trump administration has not been positive for the US economy.
US fixed investment over the past two years has been growing at a real 5.2% a year, but excluding the extraordinary investment in AI and software, it has actually fallen to -3.5%. The tech-related investment began eight years ago and the current political administration takes credit for it –although US President Donald Trump’s policies have actually been a deterrent to investment. Investors are also starting to take a more cautious view on AI investment and questioning whether it will deliver acceptable returns. If markets lose faith in the promise of AI, the effect on tech companies’ share prices could be disastrous.
Since the US started to impose higher tariffs on its trading partners in April 2025, with the goal of protecting and growing US industry,its manufacturing sector has shed jobs every month. Vacillating tariffs have created massive and persistent uncertainty and disruption for businesses,especially in manufacturers’ supply chains. This disruption is likely topersist as Trump will continue to use the threat of tariffs as a weapon, e.g.against Europe over Greenland, and as the interim agreement with China ends. As a result, former US trade partners are adapting their trading relationships: finding new partners and establishing new trade blocs. Conceivably, should the US reverse its punitive tariff policy, it will find the rest of the world has moved on.
Uncertainty has had some influence in weakening the US dollar vs the euro since mid-2025 but the data shows that investors are not abandoning the dollar. The amount of US Treasuries owned outside the US is at its highest-ever level.
There is some speculation that Trump’s goal with high tariffs is to generate funds to tackle soaring US government debt. The US is now earning about $30 billion a month from import duties, up from $8-9 billiona month previously. But this represents only 8% of total US tax revenue, and the gains are being more than offset by the huge increase in US defence spending. The annual increase in US defence spending (which in total is threetimes SA’s GDP) exceeds the whole military budget of Russia.
While the consequence of higher import tariffs should be higher inflation, US businesses are absorbing a large portion of the tariff effect to protect their markets. As a result, US inflation is a manageable 2.7%, but is not close enough to the US Federal Reserve’s (Fed) 2% target.Kevin Warsh, the chairman recently nominated by Trump to lead the Fed, cannot afford to drive through dramatic interest rate cuts, as Trump wishes, without jeopardising the central bank’s credibility. There will certainly be interest rate cuts, but the Fed is likely to stay cautious.
Another Trump policy, which has received widespread support in principle, is to crack down on illegal immigration. As a result, US population growth, normally 0.8-0.9% a year, has fallen to 0.2%. Over a million people have already left the US. That means that if economic growth accelerates, demand for labour will increase. Labour shortage will push up wages and general inflation. AI may replace workers, but that is not certain.
South African economy: slowly turning the corner
National Treasury’s forecast that the South African economy will accelerate to 2% GDP growth by 2028 falls short of what is needed to address the country’s significant unemployment rate. SA needs to add more jobs a month than the US in order to stop the unemployment rate going up – eventhough SA’s population is smaller. SA needs a growth rate of 3-4% a year, and achange in the drivers of growth, away from consumer spending and towards new construction and maintenance.
In developed markets, around 20% of GDP is generated by expenditure on building and maintenance and the other 80% from consumer spending. Emerging markets on average spend over 30% on new building and maintenance. SA spends less than 15%. To grow employment, this figure needs to increase. The reason there is so little fixed investment spending in SA is lack of confidence, which is why policy reform is important.
SA has so far implemented five tangible reforms which arecause for optimism.
The first is that the government is demonstrating fiscal discipline and now running a primary budget surplus, which is important tocredit rating agencies. This discipline is likely to be reinforced in theupcoming Budget and will encourage foreign investment into South African bonds.
The second is that inflation is under control. The inflationtarget has been reduced to 3%, which looks achievable in the next couple of years. That would prompt further interest rate cuts (although we expect theSouth African Reserve Bank will be cautious), resulting in a lower cost ofcapital.
The third reform is an increase in electricity capacity. In2025, 601 private sector companies registered generation projects with NERSA, totalling 17 000MW of capacity commitment. This is the result of government's reforms to allow private sector participation.
The fourth reform is rail. After 2019, Transnet’s freight tonnage carried on all rail systems collapsed and moved to road. Transnet’s target is now 250 million tonnes on rail by 2029 from its recent trough ofabout 140 million tonnes. Again, it is doing this through inviting privatesector participation, both in operating parts of the line and in fixinginfrastructure.
The fifth reform is private sector investment in SouthAfrican ports. A contract to manage Pier 2 at Durban Container port has beensigned with International Container Terminal Services Inc (ICTSI). It is a24-year contract, with a commitment to invest to upgrade capacity.
These five reforms will be a catalyst for growth, but they will take up to two years to deliver tangible benefits. We believe that on a3-5 year basis, SA’s GDP growth rate could exceed 3% because it is coming off a low base. Positive news boosts public confidence and helps to trigger a self-reinforcing cycle of investment.
