As we progress through 2025, the global economy finds itself navigating through heavy swells stirred up by the Trump-Tariff-Tsunami. United States (US) President, Donald Trump, has truly turned global trade, logistical supply chains and foreign policy upside-down, for everybody, simultaneously.
The current situation has many similarities to the sudden-stop scenario brought on by the COVID-19 pandemic and hence the risk of severe economic disruption, and slowdown, has increased dramatically. Financial markets have responded with increased volatility and global trade flows are showing early signs of contraction. Investors are rightly cautious as these developments will continue to ripple across equities, currencies, and commodities in the months ahead.
At Citadel Asset Management, we resist the temptation to make kneejerk changes to our medium term macro-economic assumptions purely because so much of what lies ahead is unknown. The short term will be volatile, but the world always finds a new equilibrium after every shock. So too, this shall pass. It’s obvious that the heightened uncertainty will lead to lower growth and the tariffs will be inflationary, but that’s where the ‘obvious’ ends.
In addition to Trump’s tariffs, there are additional important trends that will further impact the markets.
Persistent inflation challenges
Inflation remains stubbornly high despite earlier expectations of moderation. Elevated input costs from tariffs and supply bottlenecks are now embedding themselves deeper into pricing structures. Central banks are finding it harder to justify rate cuts, keeping financial conditions tighter for longer. Interest rate expectations have been adjusted higher, rapidly, as cuts have been priced out in the near term.
Geopolitical flashpoints remain
The Russia-Ukraine conflict drags on without a resolution, but some hope has emerged from the Middle East. A tentative ceasefire between Hamas and Israel, coupled with the release of hostages, offers a rare positive development. Nonetheless, geopolitical risk remains a persistent undertone in the markets, particularly influencing commodities and energy prices.
South Africa at a crossroads: GNU survival key to progress
Closer to home, South Africa stands at an important crossroads. The formation of the Government of National Unity (GNU) sparked a wave of optimism last year. However, questions now swirl around its durability. The survival – or potential collapse – of the GNU will be pivotal for the country’s economic prospects. If stability prevails, brighter GDP growth prospects and a more conducive environment for investment could well position South African equities and the rand for gains, even amid global headwinds.
Navigating forward with confidence
At Citadel, we continue to trust in our long-term, multi-scenario investment approach. By preparing portfolios to weather a wide range of outcomes, we ensure that our clients are not only protected against volatility but also positioned to seize emerging opportunities. Through the turbulence of 2025, we remain unemotionally dedicated to our investment process. This keeps us focused on the longer term in respect to economic outcomes and on valuation-based opportunities amidst the volatility.
Enjoy this edition of CITATION.
