A more measured and credible budget has helped restore local market confidence, even as global geopolitical tensions under the US administration of Donald Trump continue to drive commodity prices higher.
This is according to Momentum Investments chief economist Sanisha Packirisamy, who says this year’s budget speech marked a notable improvement on last year’s failed proposal to raise VAT by two percentage points, which unsettled investors and sparked widespread opposition.
“The tone and composition of this year’s budget were far more reassuring. It avoided the kind of shock measures that dented confidence previously and demonstrated a better balance between fiscal consolidation and economic support.”
She also welcomed the National Treasury’s decision to adjust personal income tax brackets in line with inflation, saying this would shield households from bracket creep and offer modest relief at a time when consumers remain under pressure from
elevated living costs.
While domestic fiscal management has improved, she emphasised that global developments are playing an increasingly powerful role in shaping South Africa’s economic fortunes. “In a world where we are still going to be having Trump as president of the United States, I think the driver for gold remains there. I don’t see that the deficit for gold could shift anytime soon; it could keep platinum up,” said Packirisamy.
Packirisamy said much has changed over the past 12 months, including skyrocketing gold prices and a shifting global political landscape that has altered capital flows and commodity markets. She explained that heightened geopolitical risk linked to US trade and foreign policy direction has boosted demand for safe-haven assets, particularly gold.
“Trump has shown the world, through the Russia and Ukraine war when (the US) froze Russia’s foreign exchange (reserves), that this can be done to others, and the emerging market has expressed fear that this might also happen to them,” she said.
In turn, markets have increasingly favoured gold and other minerals, benefiting commodity-producing countries such as South Africa.
Gold has surged in recent weeks as investors seek protection against uncertainty surrounding trade policy, diplomatic tensions and shifting alliances. “When geopolitical risk rises, investors typically move into assets perceived to be safe stores of value, and gold is a primary beneficiary,” she said.
Platinum has also performed strongly. Although partly supported by its status as a precious metal, platinum’s gains are closely linked to industrial demand, particularly from the automotive sector.
South Africa, as the leading producer of platinum group metals, stands to benefit from firmer prices through higher export earnings and improved mining revenues.
Packirisamy said geopolitical uncertainty can disrupt global supply chains and mining output, tightening supply and further supporting prices. At the same time, improved domestic fiscal credibility can amplify the positive impact of higher commodity prices on the rand and broader investor sentiment.
However, she cautioned that while rising gold and platinum prices are supportive for South Africa’s export earnings and the mining sector, sustained global tensions could weigh on broader economic growth.
“The market will need commodity prices to remain elevated over the next 12 months to provide continued relief. That support is important to stabilise revenue and reduce the likelihood of the government revisiting measures such as VAT.”
Speaking on social protection, Packirisamy said the government would need to identify a sustainable long-term funding model for the Social Relief of Distress grant after the president indicated during the State of the Nation Address that it could become more permanent.
The R370 monthly grant for unemployed citizens has been extended by another year, adding R36.9-billion to the budget. Initially introduced as a temporary measure during the Covid-19 pandemic, the grant has since become a crucial source of income for millions of South Africans who do not qualify for other forms of social assistance.
Packirisamy said while the grant plays an important role in cushioning vulnerable households, its long-term future must be aligned with fiscal sustainability, particularly in an environment where economic growth remains subdued and public finances constrained.
