If you want to see what is driving the world economy right now, look to Northern Virginia in the United States (US). There, Data Center Alley stretches for kilometres and is home to the computers that train artificial-intelligence (AI) models. The frenzy to build more of these centres has powered one of the strongest investment booms that the US has seen in years.

It is truly remarkable. A year ago, economists warned that the US was heading for a slowdown. Now, growth has surprised on the upside, share prices are at record highs, and consumers are still spending. The main reason? Wealthy households feel richer because of soaring markets. This is what economists call the ‘wealth effect’: When your portfolio grows, your confidence grows too.

But this recovery is uneven. The top 10% of Americans, who own most of the stocks, now account for about half of all spending. That means that the strength of the economy depends on a small group of asset-holders, which is a fragile base for long-term growth. If the AI story disappoints or markets correct, that ‘wealth effect’ could evaporate quickly. The US economy looks strong but its foundation is narrow.

What can South Africa (SA) learn from this?

We may not be building the next ChatGPT but we can play a meaningful role in the next wave of global growth. The opportunity is not in competing with Silicon Valley but in supporting the infrastructure that technology needs: Minerals, reliability, and consistency:

• Fixing our weakest link can become our biggest edge: SA’s energy crisis has cost us years of growth. Yet, if we manage to stabilise supply through more private generation, grid investment, and renewables, the payoff will be enormous. Global firms are desperate for reliable, cleaner energy; not cheap, just predictable. Every step we take towards stability makes us a more credible destination for new industries, from cloud storage to electric-vehicle components.
• Adding value to what we already have: The global race for minerals is intensifying. But digging faster is not the answer. We need to process more of these materials locally, capturing value before they leave our shores. A policy focus on mid-stream refining and beneficiation could do more for jobs and exports than any new incentive scheme.
• Keeping our rules steady when the world gets shaky: With trade tensions and unpredictable US politics shaking markets, investors are looking for stability. That is where we can stand out. Clear regulations, transparent procurement, and consistent enforcement might sound boring but they are what global capital rewards most. In a world of uncertainty, being a predictable partner is a competitive advantage.
• Understanding the two economies at home: SA mirrors the global divide: A small, affluent group still spends freely while millions struggle under inflation and stagnant wages. Businesses that recognise this split (offering choice across price points, loyalty programmes, and flexible payments) will outperform those that try to serve only one side of the market.
• Learning from China’s limits: China’s industrial policies created impressive factories but poor returns. Subsidies often went to politically connected firms rather than productive ones. SA does not have that luxury. We should focus less on picking winners and more on removing obstacles, making it easy to build, export, and employ.

Resilience is not luck; it is design

The US’ boom shows how quickly optimism can reshape an economy. But it also warns that growth built on paper wealth can vanish just as quickly. For SA, the lesson is to build resilience from the ground up: Energy that works, logistics that move, and rules that do not change. If we can do that, we will not need an AI miracle to grow. We will simply need to make it easy for the world’s next wave of investors to build here, rather than somewhere else.

This article has been published on Moneyweb.

Central banks have long warned that setting interest rates is a “blunt tool” for steering economies and inflation. However, this tool is becoming more blunt. As economies evolve structurally, conventional monetary policy is struggling to shape behaviour as it once did. As a result, South Africa (SA) must adapt its expectations and instruments.

In advanced economies, the problem is clear: Consumers and businesses have shifted from floating-rate to fixed-rate debt. This means that, when central banks adjust policy rates, the impact on borrowing costs takes longer to be felt. The result is a weaker, slower transmission. At the same time, the global economy has shifted from goods to services. Manufacturing and construction (historically sensitive to interest rates) now represent a smaller share of activity. Services that dominate today’s economies are more labour-intensive and less dependent on credit. And many new investments, particularly in artificial intelligence and digital infrastructure, are self-financed from cash flow, not debt. Monetary tightening, therefore, affects a smaller slice of the economy. The consequence is that central banks must move rates further and wait longer to achieve the same result. The mechanism is not broken but it has become much less predictable.

Implications for SA

The South African Reserve Bank (SARB) also relies heavily on the repo rate to control inflation and to support the rand. But its transmission mechanism has weakened. Studies show that commercial lending and deposit rates adjust slowly to policy moves; a form of “stickiness” that blunts monetary impact.

Recent research conducted by the SARB reveals that how banks react to policy changes plays a crucial role in how interest-rate decisions affect the wider economy. When the SARB raises or cuts rates, the response depends on how quickly and confidently banks adjust their own lending and deposit rates, or expand credit to households and businesses. In practice, when banks hold back on new lending or keep loan rates high, even large repo-rate changes take longer to filter through. This weakens the transmission mechanism of monetary policy, meaning that rate moves have less impact and more uneven effects across sectors. This creates several risks.

The first risk is that rate changes now have slower and smaller effects, forcing policymakers to act more forcefully or to hold rates steady for longer. Second, the impact is concentrated in credit-dependent households and small businesses, while larger firms remain insulated. Third, weaker transmission raises the risk of policy overshoot, either tightening too much or stimulating too little. Finally, it increases vulnerability to external shocks, such as commodity swings, fiscal slippage, or exchange-rate volatility.

A broader policy playbook

If the interest-rate lever is losing power, SA must rely on a wider toolkit:

• Strengthen structural and fiscal levers: Fiscal and supply-side policies, from infrastructure investment and tax incentives to energy and logistics reform, can stimulate growth directly where monetary policy cannot.
• Deepen financial markets: Improving competition among banks, reducing lending rigidity, and expanding access to alternative credit sources can help speed up monetary transmission.
• Use additional macro tools: Beyond the repo rate, macroprudential instruments, forward guidance, and selective credit measures can target specific sectors more precisely.
• Anchor expectations through communication: With slower transmission, the credibility of the SARB’s messaging becomes critical. When inflation expectations are well-anchored, even small policy moves can have larger psychological and financial effects.

A new era of monetary management

The bluntness of monetary policy is not a crisis but it does demand humility. Rate changes alone cannot fix structural weaknesses, nor can they generate sustainable growth. For SA, where unemployment is high and confidence fragile, relying solely on interest-rate adjustments risks dulling both the economy and public trust. The challenge for the SARB and government is to combine disciplined monetary policy with more agile fiscal and structural reforms. In a world where the interest-rate hammer strikes with less force, it is time to pick up sharper tools and craft a more precise form of economic management.

For the first time in years, South Africa’s (SA’s) inflation is closer to Switzerland’s than Zimbabwe’s. August’s Consumer Price Index slowed to 3.3% year-on-year, comfortably inside the South African Reserve Bank’s (SARB’s) 3% to 6% target and edging towards the lower end. Core inflation remains steady at 3.1%. These figures are far from the double-digit surges of the past, suggesting that monetary policy is finally gaining traction. So, why did the SARB hold the repo rate unchanged at 7.00% in September instead of cutting it again? Policymakers argue that past easing still needs time to filter through. With the rand volatile and SA’s risk premium high, they prefer to wait for inflation to prove that it can stay low.

Anchoring lower expectations

A quiet but powerful shift is underway. Analysts’ five-year inflation expectations have dropped to a record low of around 4.2%. This might not sound dramatic but it is the difference between inflation being viewed as a constant threat and as something under control. The SARB has hinted that it now wants inflation to settle closer to 3%, not the old “midpoint” of 4.5%. This ambition changes the game: If inflation consistently hovers near 3%, households could see more stable food and fuel costs, and investors would demand lower risk premiums on South African bonds. But it also means that the SARB will be slower to cut rates as the bar for easing has been raised.

Global crosscurrents

SA never operates in a vacuum. The world’s central banks still call many of the shots:

+ United States (US): US inflation is expected to be 2.7% to 2.9% but the Federal Reserve (Fed) is more worried about a weakening labour market. Job growth slowed in August, prompting the first rate cut since 2024. Traders expect another in October. If the Fed cuts rates aggressively, the dollar could weaken, giving the rand breathing room.

+ Markets “priced for perfection”: Wall Street is at record highs, fuelled by artificial intelligence hype and expectations of looser US policy. Credit spreads are at their tightest since 1998, meaning investors are being paid almost nothing to take risk. History suggests that these moments rarely end quietly. If sentiment turns, emerging markets, like SA, are usually the first to feel the tremors.

+ The Trump effect: In the “Trump 2.0” era, the dollar has dropped more than 10% in 2025, its weakest run in two decades. For SA, a weaker dollar helps tame inflation but also shows how political shocks abroad can ripple into local grocery prices.

Local growth is still fragile

Lower inflation is good news but SA’s growth outlook remains muted. Our gross domestic product is forecast to expand only marginally in 2025, not enough to impact unemployment. Electricity supply has improved but logistics bottlenecks at ports and rail continue to cap export potential. Bond yields remain elevated, reflecting investor caution over government debt. The rand, meanwhile, dances to the global tune. It firmed briefly on easing inflation expectations but slipped again before the SARB’s decision, showing how quickly sentiment can shift.

What does this mean for you?

+ Households: Living cost relief is real but do not expect bond repayments to fall sharply soon. The SARB will wait for proof before cutting rates again.

+ Businesses: Stable inflation helps planning but funding costs remain high. Exporters gain from the rand’s weakness, while importers benefit from softer price pressures.

+ Investors: Bonds offer attractive yields but carry fiscal and currency risk. Equities may benefit if inflation keeps falling, though global shocks remain a wild card.

The bottom line

SA is at a delicate turning point. Inflation is easing, expectations are anchored lower, and the SARB has its sights set on 3%. But global volatility, weak domestic growth, and political uncertainty still cloud the outlook. For now, it is a waiting game: Households get some relief, investors must tread carefully, and policymakers hope that this time, the hard-won gains against inflation do not slip away.

This article has been published on Moneyweb.

For the first time in more than a decade, South Africans may be entering summer without the fear of load shedding hanging over every family dinner, boardroom meeting, or production line. Earlier this month, Eskom said that it expects no load shedding between September 2025 and March 2026, contingent on keeping unplanned breakdowns under control. Last summer, we saw just 13 days of cuts vs. 176 days the year before: A remarkable turnaround for a utility long synonymous with crisis.

Why does this matter?

Electricity is the lifeblood of modern economies. When it falters, industries seize up, households lose faith, and investors take their money elsewhere. Eskom’s improved plant performance and more disciplined maintenance mean the question is no longer whether the lights will stay on but what a reliable grid could do for growth, jobs, and markets.

Manufacturing and mining are gearing up again

Few sectors suffered more from power cuts than manufacturing and mining. Outages throttled capacity, jammed export schedules, and forced costly diesel backups. The prospect of a stable summer allows plants to plan shifts and maintenance with confidence, thereby boosting throughput and safety in continuous-process operations. The latest Absa Purchasing Managers’ Index (PMI) for manufacturing slipped back below 50 in August (to 49.5 from 50.8), reflecting weak demand and trade headwinds. However, a dependable grid removes a chronic drag that companies could not control.

Small business and consumer confidence

The gains are not just for heavy industry. For salons, cafés, and township retailers, unpredictability meant either investing in inverters or losing sales. A stable grid frees up cash flow and mental bandwidth. Entrepreneurs consistently rank energy reliability among their top concerns; lifting that weight nudges hiring, retail spend, and the micro-innovations that compound into growth. For households, the benefit is equally real. Reliable supply reduces the need for costly generators or solar kits, easing pressure on already stretched budgets. If inflation expectations ease on lower energy costs, the South African Reserve Bank may eventually gain the needed room to trim interest rates, another lift for consumers and credit-sensitive sectors like housing and retail.

Markets: A credibility signal

International investors watch infrastructure reliability as a proxy for reform momentum. The rand firmed about 0.4% on Friday after stronger net foreign reserves (up from $65.143 billion in July to $65.899 billion in August), and the 2035 bond yield eased (small moves but the direction matters). Consistent energy supply strengthens the case for capital inflows, softens risk premia, and supports equity earnings where electricity once pinched margins.

Keep the scepticism (a little)

Scepticism is healthy. Eskom’s outlook is explicitly conditional: It hinges on keeping unplanned losses below stress thresholds and on continued discipline through maintenance cycles. Transmission and distribution weaknesses, municipal arrears, and residual governance risks have not vanished. One good season does not equal structural reform but it can be the platform for it.

Some other crosswinds

Even if electricity stabilises, other headwinds still have a bite. Business confidence slid to 39 in Quarter 3, below the long-term average, as firms contended with global volatility and new United States (US) trade barriers. Meanwhile, August’s PMI dip underscores soft orders at home and abroad. And in agriculture, US tariffs of 30% plus cheap sugar imports are a “double-whammy” for cane growers, threatening rural jobs and incomes. In short, electricity reliability helps but trade and demand shocks still frame 2025’s macro-story.

The bottom line: A real turning point – if we lock it in

South Africans are weary of false dawns. But if Eskom delivers a load-shedding-free summer, 2025 could mark the inflection point: Machines running, shifts working optimally, and confidence quietly rebuilding. That does not end our problems but it does remove the single biggest self-inflicted brake on growth. Keep the lights on, and the rest of the reform agenda suddenly has a fighting chance.

This article has been published on Moneyweb.