Looking at the IMF and World Economic Leaders in Davos

Looking at the IMF and World Economic Leaders in Davos 

Last week, I summarised the investment results of the various asset classes in 2024, which will be remembered as a good investment year overall.

This week, we look forward to the bigger picture of the macro world economy after the International Money Fund (IMF) released its latest economic growth forecasts and the most influential global economic leaders met in Davos.     

Our own SA inflation data came out on Wednesday. Before the announcement, we expected a slightly higher inflation number on the back of higher fuel prices - yet soft enough to see still a next interest rate cut in SA next week - even if the US doesn’t cut theirs next week, that we anticipate. The latest SA Inflation is coming out at 3,0%. This is playing out almost exactly in line with our expectations. 

The only reason the SA Reserve Bank would not cut interest rates next week would be to safeguard the current weaker Rand currency. Should this happen, in our view, it simply moves out to March, which will coincide with the expectation of the US to lower interest rates again.   

Interest rates internationally and in SA are expected to fall further this year, although maybe by less than previously thought.

Lower inflation and interest rates present a positive framework and environment for investment markets and, therefore, are welcomed.   

IMF Forecasts

At the same time as a low inflation and interest rate environment, one must consider how the greater economies will grow.

For equities (shares), where we invest in companies and not economies, it is easier for companies to do well when market conditions are most favourable (i.e., a low inflationary environment) and where there is economic growth.   

Late last Friday, the International Monetary Fund released their updated global growth projections;

The IMF has a good past track record of getting these forecasts right, often.  

The IMF anticipates that once our figures for last year are finalised, we in SA will have seen 0,8% growth last year. Pleasingly, they see an increase over the next two years at 1,5% and 1,6%. Rather interestingly, these IMF forecasts for SA are also aligned with what our Fiscus expects, where they, in turn, will confirm their updated expectations in our annual Budget Speech on 19 February. 

If I compare this to our expected investment market returns, there are several relationships between those and these IMF forecasts.

Overall, the world is expected to grow by 3.3% this year and next, which has been revised softly upwards from the 3.2% previously shared in October last year.

However, they see substantial divergent growth rates between Developed and Emerging Markets in the split.    

Developed economies are only expected to grow 1.9% this year and 1.8% next year, with the US slowing from 2.7% this year to 2.1% next year. This is a realistic view, but one can also see that it is rather far from a sustained recessionary environment, specifically in the US.   

Emerging Market economies, in turn, the IMF expects to grow by 4,2% this year and 4,3% next year, and this further supports and highlights the expectation for Emerging Markets, which can be expected to extend into their share markets - and this is supportive evidence that Emerging Markets should be included in a diversified portfolio.       

World Economic Leaders in Davos  

Most of the top world leaders met at the annual World Economic Forum in Davos this week, and here is the Chief_Economists_Outlook_for January_2025. It is an overview of what’s expected in terms of the global economy.  

It is a collaborative effort by the top international economists, banks, and global leaders. The second and third last pages show the who's who of global economics that compiled it, and Old Mutual’s chief economist Johann Els's name is also at the bottom of the third last page.

On 5, there’s a short 2-page executive summary, with the details thereafter.

In turn, they include and comment on the IMF growth forecasts, where they say, “Expectations for global growth are muted overall but subject to significant regional divergence.

The US economy is expected to deliver robust growth in 2025, and South Asia, particularly India, is also expected to maintain strong growth. The outlook for Europe remains gloomy, with 74% of respondents predicting weak or very weak growth this year. The outlook for China also remains weak, and growth is projected to slow gradually in the years ahead.

Global inflation is easing, with the International Monetary Fund (IMF) projecting an annual average of 4.3% in 2025, down from 5.8% in 2024.

The chief economists expect growing regionalisation of trade, as well as a continuation of a gradual shift in the composition of trade from goods to services. In general, advanced economies tend to benefit more than developing economies from services trade, but most of the chief economists point to the increasing importance of services as a driver of economic development”.

Whatever you look at it, we need more growth in SA. I believe the importance of services will be a key element in achieving this growth.

That Extra Bit from Old Mutual Wealth Private Clients

Here is the link to That_Extra_Bit_24_January_2025, where they share a few interesting articles on some of the companies they hold in their portfolios.
 
In this week’s issue:

· LVMH becomes Europe’s most valuable company

· Nestlé announces US$30 million upgrade to KitKat factory

· Amazon opens Cape Town walk-in centre

Retirement Annuity (RA) and Tax-Free Savings Account (TFSA) top-ups are here!

Now is the perfect time to ensure that your contributions to your retirement annuity (RA) fund still meet your retirement goals and to take full advantage of the current tax Year’s deduction regime.

The 2024/2025 year of assessment ends on 28 February 2025. This means you only have until the middle of next month to make additional (tax-deductible) contributions to your RA fund or to make a lump sum (tax-deductible) contribution to a new RA fund if you don’t already have one.

Don’t miss out on this opportunity to maximise your tax deduction and boost your retirement savings. Also, don’t leave it until Feb 27^th to decide to make additional contributions. The product providers have strict cut-off times and if you miss the boat, you miss the tax you could have saved.

If you are not sure what an RA or TFSA is or are still on the fence about making the extra contributions, have a look at this Retirement Annuities And Tax Savings For 2024 article we wrote on the benefits of each of them and why everyone is SA that pays tax should at least have a RA.

If you already have enough to retire on yourself, reducing your estate by making TFSA contributions for kids or any other people you care about is a great way to reduce your estate duty. You could create generational wealth with only R36,000 paid into this investment until the lifetime allowance of R500,000 is used up.

FRIDAY FOOD FOR THOUGHT