Weekly economic wrap: ArcelorMittal closing and Trump playing with markets

The first week of 2025 was not a busy one on the economic front, but ArcelorMittal announcing that it will close down its long steel business quickly became a hot topic. On the international front, US president-elect Donald Trump played with the markets.

Lisette IJssel de Schepper, chief economist at the Bureau for Economic Research (BER), notes that Trump did what he does best this week and moved financial markets through social media and a wide-ranging press conference later in the week.

“After announcements by his team that could be interpreted as ‘going soft’ on his tariff plans (and the dollar weakening as a result), he went all in on a social media post, which caused markets to turn and once again worry about the potential impact of tariffs.

“His plans to ‘buy’ Greenland also featured, with Trump refusing to rule out a military invasion to seize the region if needed for national security purposes. He did say he would not use the military but rather “economic force” to pressure Canada into doing what he wants.

“At the same time, he doubled down on his argument that the US must reclaim the Panama Canal. All this and he is not even president yet. One thing is certain: it will be a volatile couple of years, and volatility is generally not good for small, open/emerging economies like South Africa.”

ALSO READ: Tumbling rand has a lot to do with SA’s ‘weak growth story’

Rand had a bad week, about R1/$ lower than a month ago

The Rand also did not have a good week and slipped to a seven-month low, edging closer to R19/$. “The Rand is about R1/$ weaker than this time last month. The steepest decline in the rand came mid-week after a report that Trump is considering declaring a national economic emergency, which would allow for universal tariffs.”

She says it is also worrying that South Africa’s CDS measure (a measure of sovereign default risk) rose to the highest (worst) level since mid-August.

Isaac Matshego and Busisiwe Nkonki, economists at the Nedbank Group Economic Unit, point out that the Rand has remained under pressure as US dollar strength persists.

“The local unit ended 2024 at R18.85/$, down by 3% for the year, and it hovered between R18.75 and R18.95/$ in the first days of 2025. This morning, it was trading at R18.95/$.“

Meanwhile, the Brent crude oil price rose above $76 for the first time in three months, but IJssel de Schepper says unless the oil price increases significantly more, or the Rand slides even weaker, these developments should not derail the South African Reserve Bank’s plans to implement another 25 basis points cut later this month, although it will stress the upside risks stemming from this.

ALSO READ: ArcelorMittal closing down long-steel works, cutting about 3 500 jobs

Disappointing local data releases and ArcelorMittal closing down

IJssel de Schepper also points out that the domestic data releases were disappointing. “While new vehicle sales continued their three-month streak of positive annual sales growth, monthly sales declined in December.

“Manufacturing production contracted monthly and annually in November. This was foreshadowed by a dip in the November Absa PMI. Worryingly, the Absa PMI fell further in December, while the S&P Global PMI also pointed to a loss of momentum at the end of the year.”

She says in a blow to the local manufacturing sector (with knock-on implications for the rest of the economy), ArcelorMittal (AMSA) announced it will proceed with winding down all of its long steel business by the end of the first quarter.

“While receiving some support after warning about the challenges faced by the production processes in November 2023, ArcelorMittal said this was not sufficient to overcome the underlying structural constraints, such as the worsening steel market, unaffordable energy and logistics costs, and increasing low-cost steel imports from China.”

IJssel de Schepper emphasises that the lack of momentum in manufacturing production and the reasons for ArcelorMittal’s decision to close its long steel business underscore that South Africa remains a challenging place to do business.

“While there is goodwill and confidence in a better future (reflected in the positive expected business conditions reading of the latest PMIs despite current weakness), we must make real progress on the structural reform front to ensure that the cyclical push expected over the short term translates into sustained economic growth required over the medium term. Unfortunately, the latest financial statements from Eskom and Transnet were uninspiring.”

ALSO READ: SA business activity runs out of steam at end of 2024, but not all bad — PMI

Disappointing Absa and S&P Global PMIs

The two PMIs for December were disappointing. The S&P Global PMI, measuring activity across the private sector, dipped to just below 50 after four months in expansionary terrain. More concerning, IJssel de Schepper says, is the Absa PMI, tracking activity in the manufacturing sector, that fell for a third month.

“Activity weakened amid lower domestic and export demand. While both PMIs still point to optimism about business conditions moving forward, the slowdown at the end of the year bodes ill for the fourth quarter of 2024.”

ALSO READ: Preliminary trade balance surplus improves in November

New vehicle sales not that great either

Domestic new vehicle sales experienced a strong end to the year and saw a 2.5% increase in sales in December compared to December 2023, the third consecutive annual increase. However, on a monthly basis, seasonally adjusted sales dipped lower compared to November but still increased compared to the previous quarter.

IJssel de Schepper says for the full year, vehicle sales were about 3% lower than in 2023 and remained below pre-Covid levels. “This was largely due to a very weak first quarter. Despite doing better towards the end of the year, exports were down by more than 20% from 2023 to 2024.”

ALSO READ: Transnet half-year results show better income, but even bigger loss

Manufacturing production contracted in November, foreshadowing ArcelorMittal closure

According to Statistics SA, factory production declined by 2.6% in November 2024 compared to November 2023. On a seasonally adjusted basis, production was down by 1.1%, virtually offsetting the 0.8% monthly gain in October and leaving it down from the third quarter on a quarterly basis.

IJssel de Schepper warns that December’s print will have to come in strong to prevent a contraction in the fourth quarter compared to the third quarter. “The dip in the Absa PMI in December suggests that this is unlikely.”

Matshego and Nkonki, the 2.6% contraction, reversed the 0.9% gain in October. “Parts and accessories were the leading cause for the decline, followed by paper and paper products and special purpose machinery.

“High operating costs remain a hindrance for manufacturers, and the sideways trend in production is likely to continue over the short- to medium-term.”