At the recent World Economic Forum annual meeting in Davos, US President Donald Trump sketched a picture of the global economy. “When America booms, the entire world booms,” he said. “You all follow us down and you follow us up.”
Sanlam Investments’ 2026 economic outlook suggests that while the US indeed has an undeniable impact on the South African economy, the dollar and rand are on quite different trajectories.
Historically, when you go around the world and look at where there have been high inflation episodes, the source is inevitably unsustainable fiscal policy. And that’s the risk they presently have in the US, where fiscal policy is still too loose. This is a long-term, structural view that I hold to be problematic.
Economic fundamentals — more so than many of the headline-grabbing risks — are what guide our thinking around South Africa’s outlook. There are broad political and geopolitical events taking place that are likely to have longer-term implications on the economy and cannot be ignored. But in the near to medium term, questions like what will happen to the dollar, what will happen to US growth and what will happen to inflation are what’s really holding our attention.
The US import tariffs of Trump’s second term, announced last April, are already shaping the global economy. US imports have started to fall. On an annual basis, imports are now lower than a year ago. US exports are meanwhile picking up, which is partly a function of the weaker US currency.
The dollar is not expected to fall in a straight line, but we think it will continue to depreciate — if not in a straight line, then over time. On balance, the dollar remains a currency that is more likely to be on the back foot than the front foot.
The rand has strengthened against the dollar from about R18.50 in early 2025 to a little under R16 at the time of writing in early 2026. We are likely at the beginning of a structural fall in the US currency, but this view will be tested.
The dollar is not expected to fall in a straight line, but we think it will continue to depreciate — if not in a straight line, then over time. On balance, the dollar remains a currency that is more likely to be on the back foot than the front foot.
What does this mean for South Africa’s economic outlook? The dollar has weakened materially since early 2025 and that has contributed to rand strength. But what also helped the rand — a lot — was the strong bounce in the gold price that came with the search for an alternative to the dollar, including among central banks.
Our estimate is that a strong bounce in South Africa’s terms of trade relative to a year ago is compensating for the decline in South Africa’s exports to the US. So, the impact of the tariffs came through as expected, but our higher terms of trade (the ratio of export prices to import prices) helped to negate that impact.
Inflation expectations
Historically, changes in commodity prices have had a strong influence on the rand and it is therefore no surprise to see the strength in the currency.
The rand is in disinflationary territory. It is likely to remain there while commodity prices are high. This holds the promise of downside inflation surprises relative to present projections.
Should this help drive inflation expectations lower — which are still significantly above target for businesses and trade unions — it will create the opportunity for more interest rate cuts.
The timing and magnitude of this are uncertain. Still, overall the positive effect of higher commodity export prices on domestic income and purchasing power against the backdrop of potential further monetary policy easing suggests upside risk to GDP growth forecasts.
If so, this would imply better-than-expected government revenue receipts over the medium term, thus contributing to much-needed government debt stabilisation (though expenditure restraint remains key).
Add to this the nascent improvement in economic reform momentum and it seems the South African economy is in the best space it has been in for some time.
• Kamp is chief economist at Sanlam Investments.
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