Economic Overview - Efficient Private Clients
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Economic Overview

6 May 2025 Economic Overview - By efpc


Global financial markets staged a significant recovery in May. This recovery was driven by a fragile easing in United States (US) trade policies, most notably with China and the European Union (EU). These developments rekindled risk appetite but also highlighted how quickly sentiment could sour if tariff talks break down. Investor confidence further improved on the back of a robust Quarter 1 (Q1) earnings season, which was led by big tech and artificial intelligence-driven firms, whose outsized profit margins offset trade-related risks. Growth data was less hopeful, as the US Q1 growth release showed an annualised 0.2% contraction. This was the first shrinkage since 2022, as a surge in imports ahead of “Liberation Day” tariffs outpaced growth in foreign investment and consumer spending.

In other economic news, headline inflation continued to decelerate to multi-year lows across most developed regions. Central banks, however, remain cautious when it comes to concerns around a softening labour market in the US, slowing economic activity, and lingering trade uncertainty in Europe. Meanwhile, the Bank of England delivered an unexpected rate cut, reducing its short-term policy rate to 4.25%. Against this backdrop, developed markets surged 5.9%, with the S&P 500 (+6.3%) and Nasdaq (+9.7%) posting their strongest monthly gains since November 2023. While the EU, United Kingdom, and Japanese equities lagged behind the US, these markets were still significantly higher for the month.

South Africa (SA) again found itself in the global spotlight when President Cyril Ramaphosa and his delegation, accompanied by business tycoon Johann Rupert and golf legend Ernie Els, travelled to the US to meet with President Donald Trump and his administration. The purpose of the meeting was to strengthen trade relations and to debunk the narrative of a “white genocide” in SA. Despite the meeting showing signs of an ambush, it seems that some progress was made, with talks around a comprehensive trade agreement reportedly now in its final stages. Global momentum and improved risk appetite, as well as a decrease in local interest rates, all contributed to strong local asset returns.

Other highlights during the month included:

  • US debt downgraded: Sovereign bond volatility spiked during May following Moody’s downgrade of US debt from AAA to AA1, citing rising trade deficits and interest payments as key concerns.
  • South African Reserve Bank (SARB) rate cut: The SARB Monetary Policy Committee voted to lower the repurchase rate by 25 basis points to 7.25%, the lowest level since January 2023.
  • Gold took a breather: Gold stocks were a minor detractor during the month, as the metal’s price paused after a two-year rally of more than 70%.