Geopolitical tensions remain elevated, both between and within nations, contributing to a persistently uncertain global environment. Despite these risks, the global economy is expected to remain broadly stable across most major regions through the remainder of the year.
While the escalation of US tariffs presents a modest headwind to growth, the overall impact is likely to be contained, and the inflationary effects are expected to be transitory. In the United States, controversial monetary and fiscal decisions continue to unsettle markets. Where policy has a direct short-term impact on markets, such as intervening in Fed independence, we would expect the market to force the government’s hand via a higher long-term funding rate.
Domestically, South Africa’s strong terms of trade continue to support the trade balance and fiscal position. At the same time, a firm rand and moderate inflation have created room for measured interest rate cuts.
US: AI led growth
US GDP growth for Q2 was revised upward, driven by stronger-than-expected consumer services spending, which rose 2.5%, and non-residential investment, which was up 3.6%. Notably, tech-related expenditure now accounts for over 40% of total fixed investment in the US.
This growth lever is expected to persist in the short term as major tech companies continue to invest in AI infrastructure, driven by ample cash reserves and strong incentives to maintain technological leadership. A new tax amendment, effective next year, will allow investment projects to be written off in one year, further stimulating investment spending.
There are ongoing debates about the long-term economic impacts of AI, including how productivity gains will balance against the potential negative employment effects. Importantly, much of the AI-related capital expenditure is being financed by tech companies’ operating cash flows and equity raises, rather than debt, which mitigates some bubble risks. There is uncertainty over sustainable returns and valuations in the sector, but in the short term, the tech segment remains the primary driver of the upward earnings revisions and price outperformance of the S&P 500.
While a weakening labour market offers the Federal Reserve some latitude to cut interest rates, reasonable economic growth and persistent services inflation limit the scope for aggressive cuts. The US dollar is expected to weaken in the coming year as growth slows and interest rates decline, providing support for commodities and emerging market assets.
Europe: Gradual recovery
The European Central Bank is likely to pause its rate-cutting cycle for now, as European inflation remains steady at around 2%. Although economic activity remains subdued, resilient purchasing managers’ indices (PMIs) are hovering just above expansionary territory, and business surveys continue to point to modest growth. Unemployment remains at a record low of 6.2%, reflecting a surprisingly robust labour market despite tepid output. Structural reforms, particularly increased investment in defence, energy transition, and infrastructure, are progressing gradually. While these initiatives will take time to translate into higher earnings growth, they provide a constructive medium-term backdrop and should function as a tailwind for European equities as implementation gathers pace.
China: Policy shift and tech drive
China’s growth momentum remains uneven, with the state’s sustained promotion of manufacturing leading to large trade surpluses, growing industrial overcapacity, and persistent deflationary pressures. While PMIs have held just above 50, signalling mild expansion, underlying domestic activity and consumption remain lacklustre, with growth still heavily reliant on exports. The property sector continues to weigh on sentiment, although the pace of price decline is slowing. There are early signs of improvement in consumer confidence, supported in part by the strong year-to-date performance of Chinese equities, with the Hang Seng up over 30%.
Beijing’s recently launched “anti-involution” policy initiative seeks to address structural inefficiencies stemming from excessive competition and duplication across industries. Targeted measures include curbing overcapacity in sectors such as solar manufacturing, reducing price wars in the electric vehicle market, and discouraging redundant provincial investment projects – all of which are designed to support corporate profitability and improve capital discipline. Pro-consumption initiatives such as minimum wage increases and targeted fiscal support have also been introduced, although the overall scale remains modest. Meanwhile, China continues to pursue its agenda of technological self-sufficiency, particularly in the areas of artificial intelligence and advanced semiconductors. Recent regulatory reviews indicate that domestic AI chip capabilities are now comparable to, or in some cases exceed, the Nvidia products permitted into China under US export controls. Technology champions such as Tencent are already demonstrating tangible productivity gains from AI integration, underscoring China’s broader ambition to cement its position as a global technology leader.
Commodities: Glittering gold
Whilst the global environment remains broadly supportive of emerging markets and commodities, gold has been surging for several reasons. Gold can be driven by any one, and at times all three, of the following factors:
- its role as a fear gauge,
- its behaviour as a currency influenced by interest and inflation dynamics, and
- its enduring status as a store of value and reserve asset.
Although the gold price now appears extended relative to inflation and other commodities, the world has entered a new geopolitical era which is quite different to the previous 80 years. The weaponisation of currencies has eroded confidence in the US dollar as a neutral reserve asset, encouraging diversification into gold. In addition, the US’s rising debt trajectory raises long-term concerns about the dollar’s value. While shifts in monetary policy, inflation expectations, and political risk will continue to influence short-term price action, the geopolitical fracturing of the global order is likely to remain a powerful, long-term support for gold. EM central banks’ gold holdings remain low compared with those in DM countries, suggesting continued structural demand.
The outlook for platinum group metals (PGMs) is more nuanced. On the negative side, the accelerating adoption of electric vehicles (EVs) continues to erode demand for PGMs. However, supply dynamics offer an offset: South Africa, home to most of the world’s PGM production, is experiencing declining mine lives from years of underinvestment. Additionally, current basket prices are well below the incentive price required to build new mines. Whilst there is some speculative potential for platinum to re-rate as a “reserve” precious metal, the market’s small size limits its viability for large-scale central-bank accumulation. Given the thin and concentrated nature of these markets, price volatility could be significant if supply tightens or investor sentiment turns more favourable.
Copper remains structurally undersupplied, with a recent flooding incident at Freeport’s Papua mine in Indonesia expected to exacerbate already constrained supply. This has reinforced expectations of widening copper deficits and sustained elevated prices amid accelerating demand for electrification. Copper miners, which typically trade at premium valuations due to their scarcity value, have benefited.
South Africa: Incremental improvement
The domestic backdrop showed encouraging signs of gradual improvement through the third quarter, supported by incremental structural reform. Transnet’s port operations have improved markedly, with no vessels waiting to berth and container volumes back to 2017/18 levels. Having completed all 40 recommendations, SA’s formal removal from the grey list is expected in October, which would bolster business confidence and facilitate cross-border financial flows. Tourism activity continued to strengthen, up 28% year-on-year in August, while the housing market has also shown renewed momentum.
On the political front, the Government of National Unity (GNU) continues to hold, providing an element of policy stability ahead of the next major political inflexion point – the ANC’s elective conference scheduled for late 2027. However, service delivery failures, particularly in Gauteng, are emerging as a key political flashpoint. Encouragingly, trade discussions with the US are reportedly progressing well, raising the prospect of a one-year extension of AGOA, which would further support the country’s export industries.
While strong terms of trade, a firm rand and moderate inflation have created room for measured interest rate cuts in tandem with the US easing cycle, the South African Reserve Bank’s commitment to inflation targeting may temper the pace of policy loosening. Challenges remain, particularly around subdued domestic consumption and ongoing earnings downgrades in cyclical consumer sectors, reflecting ongoing household pressures. Nevertheless, while near-term growth prospects remain modest, the combination of policy progress, reform momentum, attractive valuations, and falling real yields provides a constructive backdrop for South African assets into year-end.
