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.
Johann Els, Group Chief Economist at Old Mutual, shared his perspectives on the possible economic outcomes of President Trump's return to office.
"My best-case scenario includes a soft landing in the U.S., further easing in inflation, further rate cuts, and a somewhat weaker U.S. 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," Els said.
Discussing the potential impact of Trump's proposed policies, Els added, "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 U.S., 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 U.S. 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 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 Federal Reserve 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.
Els also addresses the potential effects on the U.S. dollar and emerging markets, "These policies and higher rates in the U.S. 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."
In light of the immediate market reactions following the election results, Els advises caution.
"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."
He recommends that investors remain steady and consult with their advisors, "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 U.S. 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."
He anticipates increased volatility in the coming months.
"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."
Els also considers the international ramifications, particularly concerning China.
"Because tariffs will hurt the Chinese economy, the share of Chinese exports going to the U.S. 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."
BUSINESS REPORT