South Africa must focus on fundamental local factors it can control to strengthen the economy and the Government of National Unity must act on the systemic issues in the economy, says investment firm Citadel portfolio manager Mike van der Westhuizen.

“South Africa’s economic growth is expected to average around 1.8% a year over the coming years, but growth closer to 3% is required to sustainably grow the country out of its unemployment crisis and shaky but improving fiscal position,” he says in Citadel's 'Outlook 2025' statement.

To turn the situation around, it is time for the massive uplift in sentiment towards the GNU to be turned into real action. While many departments are sailing ahead with new and improved initiatives, actual economic progress has been mediocre, he notes.

However, the break in loadshedding has been an immense tailwind in terms of energy security, but more needs to be done to ensure longer-term energy security.

Fixing the rail and port issues is also critical to the country’s export sector and has cost foregone trade revenue. Other issues such as water security and decay at municipal level are also problems that require urgent attention.

“Policy execution has hamstrung progress in the past and the GNU must prove the doubters wrong. Government must now start walking the talk in a more meaningful and impactful way,” says Van der Westhuizen.

While South Africa has experienced a period of low inflation, energy prices are still elevated and global food inflation is increasing.

However, South Africa's inflation should remain “well behaved”, which gives the South African Reserve Bank (SARB) room to cut interest rates twice or thrice this year, he notes.

Further, Citadel is expecting moderate slowing in global economic growth this year, while global markets could experience heightened volatility over the next few weeks owing to "Trump policy risk".

Meanwhile, a strengthened dollar will temporarily push down the rand, which could stabilise at about R19 to the dollar, he adds.

“The Chinese equity market is something to keep an eye on. Should China stimulate its economy further, as we expect, there could be a decent upside for emerging markets. However, this relies on a weaker dollar.

“In the short to medium term, we believe the dollar will remain relatively strong and, while emerging market valuations are favourable, the catalyst to unlock this is determined by the US dollar. The same can be said for most non-US assets,” say Van der Westhuizen.

“China will watch [US President Donald] Trump’s policy announcements before shooting the proverbial bazooka on more stimulus. A Chinese economic resurgence will benefit Europe, which is a big trading partner, and South Africa through the resources channel,” he notes.

“Trump's comeback will likely bring back unusual and ambiguous methods of announcing decisions, which will heighten volatility. This calls for well-diversified portfolios and good tactical asset allocation and stock selection. Volatility presents opportunity. This year will favour those who manage risk well,” Van der Westhuizen says.

Meanwhile, Citadel expects US inflation to remain above the 2% central bank target. The US Federal Reserve’s (Fed's) reaction function will depend on the combination of inflation and unemployment.

With some growth slowdown and inflation that is not expected to reaccelerate aggressively, the Fed could cut rates two to three times this year. The market awaits more clarity on Trump policy and its potential impact on the Consumer Price Index, he says.

Further, the US is still riding a two-year high off its exceptionally powerful equity market.

“Earnings expectations on US technology, in particular, are relatively high and leave little margin for disappointment this year.

“Outside of technology, there are early signs of a broadening out in US outside of technology. The team still believes US equities are more favourable than developed markets outside of the US for the time being.”