Economic Ramifications of the US-Iran Ceasefire for South AfricaCitadel Warns of Protracted Risk

On the first day of the much-anticipated ceasefire between Iran and the United States, a fragile sense of calm was disrupted by escalating tensions in the Middle East.

Allies of both nations engaged in skirmishes, with Lebanon grappling with escalating conflicts against its neighbour, Israel. Adding to the unrest, Iran took the decisive step of closing the strategic Strait of Hormuz , highlighting the precariousness of peace even as negotiations began in Pakistan.

The Local Impact

April has already experienced its share of economic strain as South Africa witnessed significant increases in fuel costs. In response, the government implemented a reduction of R3 in fuel levies to alleviate the burden on consumers.

The SARB chose to keep interest rates unchanged at the end of March, reflecting cautious optimism amid uncertainty.

Local markets exhibited a positive reaction to the ceasefire announcement, evidenced by an uptick in stocks on the JSE, which reached its highest levels in over a month. The rand also showed signs of strengthening.

Citadel’s Analysis

Maarten Ackerman , Chief Economist at Citadel, told Business Report that the market reaction following the announcement provided a clear illustration of how successful peace talks could positively influence global markets.

“That optimism, however, proved short-lived. Renewed attacks between Israel and Lebanon overnight on Tuesday, 9 April, followed by Iran once again closing the Strait of Hormuz, quickly reversed sentiment.”

The Protracted-Risk Scenario

Ackerman said that at Citadel, they are increasingly focused on their protracted-risk scenario.

“Under this outcome, almost irrespective of what happens over the next two weeks, the global economy is likely to lose approximately 0.8% of growth over the next 12 months, while inflation could rise by a further 1% from its current base and remain stubbornly sticky.”

South Africa’s Challenges

“For South Africa, this backdrop is particularly challenging. The economy’s heavy reliance on agriculture and elevated input costs mean higher diesel prices and fertiliser costs, much of which is sourced from the Gulf, will place additional pressure on growth.”

“In this environment, South Africa is likely to struggle to achieve 1% growth.”

The Bottom Line

At least 182 people were killed and nearly 900 wounded on Wednesday in Lebanon. The US-Iran ceasefire hangs by a thread.

Ackerman’s message: even in a best-case outcome, significant economic damage has already been done. Reversing these effects will take time.

South Africa’s economic stability is intricately tied to the outcomes of these pivotal negotiations. And the picture is not optimistic.

{Source: IOL}

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