Closing bell: 2025 Reflections
As we approach the end of 2025, it is an opportune moment to reflect on a year that has been both complex and transformative. Global financial markets were shaped by considerable volatility, triggered by a confluence of factors including sweeping US tariff policies, geopolitical uncertainty, technological shifts driven by AI and the crypto boom. South Africa, as an integral part of the global financial system, was not immune from these shockwaves.
Against this backdrop, Prowess Investments Managers have sought to leverage the dislocations in bond markets to separate signal from noise, exercise discipline and make thoughtful, well-timed investment decisions. In doing so, we have continued to create meaningful value for our clients despite an unsettled environment.
Global Context
In April 2025, the US imposed large tariffs on most trading partners. The move prompted the IMF’s April 2025 World Economic Outlook (WEO) to warn of a potentially significant global growth slowdown. Eight months later, the global impact has been at the modest end of expectations. Private-sector agility (front-loading imports, rapid supply-chain reorganization and new trade agreements) along with global restraint in keeping markets open, has helped maintain projected global growth at 3.2% in 2025 and 3.1% in 2026. However, it is remiss to conclude that the tariff shock had no impact. The US effective tariff rate remains high at 19% and uncertainty continues to weigh on the outlook. Over time, as tariffs pass through to consumers and supply chains settle into less efficient structures, negative effects may grow. Outside the US, various offsets have helped. In China, despite heavy tariff exposure, growth was supported by currency depreciation, redirected exports and fiscal measures. Germany’s fiscal expansion supported the Euro Area growth and emerging markets are benefiting from easier financial conditions.
Tariffs and the broader rewiring of global supply chains have so far had a muted impact on inflationary pressures. In the United States, both headline and core inflation have risen only slightly despite extensive tariff announcements. This limited response likely reflects delayed pass-through, as factors such as stockpiling, temporary tariff pauses and trade diversion or rerouting have kept the effective tariff rate below the statutory rates implied by announced measures. As a result, the inflationary impact may still emerge with a lag.
South African Economy
South Africa’s GDP grew by 0.5% QoQ in 3Q25, down from 0.9% in 2Q25 but stronger than the weak 0.1% recorded in 1Q25. Annual growth also improved, with Q3 expanding by 1.9% on the expenditure side and 2.1% on the production side—both higher than a year earlier and above the 1.3% pace recorded over the first nine months of the year. The production rebound was broad-based, with most sectors posting modest gains, although electricity output contracted. On the expenditure side, household consumption remained the key driver, supported by 150 basis points of rate cuts between September 2024 and November 2025, two-pot pension withdrawals totalling R75 billion by end-September and subdued inflation. Private-sector credit extension also accelerated, rising 7.3% YoY in October from 6.1% in September. Much of the expansion is linked to renewable-energy investment following NERSA’s registration of nearly 6 000 MW across 488 new projects.
On November 12th, Finance Minister Enoch Godongwana presented South Africa’s Medium-Term Budget Policy Statement (MTBPS). The statement signalled stronger policy coordination with the SARB, most notably through lowering the inflation target to 3%. Treasury maintained its commitment to fiscal consolidation despite revising the 2025 GDP growth forecast down to 1.2%, supported by better-than-expected tax collections. Funding pressures are set to ease through a R750m weekly reduction in SAGB issuance and the planned use of an additional R31 billion from GFECRA. These measures reinforce the GNU’s focus and commitment on restoring fiscal sustainability and improving spending quality through expenditure reviews and public-sector professionalisation.
Final thoughts
Change is the only constant and 2026 is shaping up to be a year where policy commitments begin translating into concrete action. The current AI boom echoes the late-1990s dot-com surge with optimism around transformative technology. As the momentum builds, investors will be watching closely to see how AI reshapes key sectors (transport and logistics, agriculture, education and health care) gauging whether today’s enthusiasm will evolve into sustained productivity gains and long-term economic growth.
Global politics remain unsettled. The conflicts between Russia and Ukraine, as well as Israel and Hamas, continue to disrupt supply chains and weigh on economic stability. While institutions like the UN face mounting pressure in brokering peace, they also show a sustained commitment to reform and multilateral cooperation.
Domestically, the groundwork for economic progress has been laid. Government reforms in energy and logistics signal a more constructive trajectory, even if their benefits will take time to materialize. Despite persistent challenges (elevated inflation, a weak rand and fiscal pressures) the economy is seeing modest growth supported by household spending and renewed investment in the energy sector.
How Investors Can Respond in 2026
In 2026, investors should adopt a cautiously optimistic stance, balancing global uncertainty with emerging opportunities. With trade disruptions, geopolitical tensions and delayed tariff effects likely to sustain volatility, portfolios should prioritise quality assets, diversify across regions and sectors, and selectively extend duration as bond markets stabilise.
In South Africa, improved fiscal coordination, reduced bond issuance and ongoing energy and logistics reforms create supportive conditions for local fixed income and sectors linked to consumer spending and private energy investment.
At the same time, the accelerating AI and renewable-energy cycles offer long-term growth prospects, best approached through disciplined, fundamentals-driven exposure. Maintaining adequate liquidity and hedges such as commodities and diversified currencies will help investors stay resilient while capitalising on dislocations through the year.