At the time of writing this, oil prices just surged to around $100 a barrel for the first time since 2022, and fears of global economic stagflation have hit headlines. Izak Odendaal, Investment Strategist at Old Mutual, says the war in Iran is another reminder that the geopolitical order is changing; a messy, often devastating process, that creates winners and losers. 

One standout winner is the news-media; conflict begets clicks. Amidst all this noise, there’s a significant risk that investors may overreact. Izak’s message for intermediaries right now? Help clients to stay calm and stick to their financial strategy.  

While the world seems to erupt, South Africa’s outlook appears far more positive. Here, Izak answers questions on his post-Budget economic outlook for the year ahead – local and further afield.

1. We’ve seen from the price of oil that it’s impossible to predict what’s next. If geopolitical conflict escalates and is prolonged, what are the ramifications for South Africa – and what should local investors do?

We are operating in an unusually uncertain environment, with geopolitical developments, policy uncertainty in the US, and major technological shifts – particularly around AI – all contributing to market volatility. Volatility will therefore remain a feature of markets. This makes a well-structured asset allocation and investment strategy important, helping investors avoid the mistake of selling out of their portfolios at the first sign of turbulence. In an environment where the dispersion of returns remains elevated – reflecting both uncertainty and resilience – asset allocation discipline becomes even more important.

The Old Mutual Absolute Growth portfolios, for example, are anchored in a strategic asset allocation with around 83% exposure to growth assets – including local and global equities, property and alternatives – alongside tactical asset allocation that allows positioning to adjust as market conditions evolve. Last year, for example, it maintained a strong overweight position in local asset classes, which contributed positively to performance. This combination of strategic discipline and tactical flexibility enables the absolute growth portfolios to respond to the changing opportunity set across different regions and asset classes, while remaining aligned to the long-term retirement outcomes.

2. How central is the trajectory of the US labour market to your global outlook – and what would a downside scenario mean for South African exporters and capital flows to emerging markets?

It is very important. A further gradual weakening will pull US interest rates down, and with it, the US dollar. This should benefit emerging markets. However, an unlikely sudden deterioration will lead to recession fears, and rising market anxiety that typically results in capital outflows from countries like South Africa. There is also a scenario where the labour market stabilises, leading to interest rate cuts being priced out. This would lead to some upward pressure on the dollar. 

So how weak is the labour market? The US economy grew by 2.2% in real terms in 2025, employment only grew by 0.4%. Put differently, the US economy only added 181 000 new jobs in 2025, the slowest pace of job creation outside a recession this century. In contrast, 2024 saw 1.4 million jobs added.

It looks like a case of jobless growth, which one would not normally expect to persist. The gap will have to be closed by employment growth accelerating or GDP growth slowing further. Without job creation, it becomes difficult to sustain the aggregate growth in worker incomes needed to fuel broad-based consumption spending.

However, given policy uncertainty, immigration crackdowns and AI experimentation, firms might remain reluctant to hire more staff for some time. 

3. How do you foresee the AI investment boom playing out this year? Will we see more benefits filtering into the real economy and other sectors? 

The AI capex boom shows no sign of slowing. The biggest US tech companies have, in fact, committed to increasing spending from around $400 billion in 2025 to more than $600 billion in 2026. 

AI is already used daily by hundreds of millions of people around the world – the quickest uptake of a new technology ever. However, daily use is not the same thing as becoming meaningfully more productive in your job. In some roles and companies, that will be case, but it would be remarkable if economy-wide productivity gains arrive so soon. These things usually take time as companies adjust their processes to incorporate the new technologies, overcoming resistance from workers and institutional and operational bottlenecks in the process. 

Nonetheless, investors are eager to see AI use becoming more deeply entrenched in the real economy, such that people and firms are prepared to pay to use it. Otherwise, there is the risk that the massive capex will not generate sufficient returns, ultimately leading to losses, write-downs and a scaling back of plans. 

4. South Africa’s 2026 Budget painted an optimistic outlook; are we being too positive? 

The 2026 Budget felt both familiar and different. In many respects it was predictable, with macroeconomic and fiscal policy broadly in line with the Medium-Term Budget presented in November last year. The fiscal metrics remain largely unchanged, with government continuing to prioritise debt stabilisation, faster economic growth and increased infrastructure investment to lift growth over the medium term. Importantly, this year is expected to mark a turning point: for the first time in 17 years South Africa’s debt-to-GDP ratio is projected to peak, before starting to decline from next year. As debt levels stabilise, the debt-service burden – currently about 21 cents of every rand collected in revenue – should also begin to ease. This continuity and fiscal discipline are likely to be welcomed by investors.

What does feel very different compared to a year ago is the broader market and policy environment. South Africa has moved from the promise phase to the delivery phase. There is a renewed sense of optimism, reflected in lower government bond yields, a more stable and stronger rand, credit rating upgrades and a rally in the JSE. When the minister presented this budget, it felt as though several key policy developments were finally beginning to align. These include the shift to a lower inflation target supported by the credibility of the Reserve Bank, ongoing structural reforms driven by Operation Vulindlela in the Presidency, and the coordinated efforts that helped South Africa exit the FATF grey list. Together, these developments create a more supportive backdrop for economic recovery and investment.

There are good reasons to believe the recovery will be durable. Before the spike in the oil price, inflation was around 3.5% and expected to return to the 3% target. The decline to 3% inflation will likely now take longer, which will postpone repo rate cuts, though at this stage they still seem likely towards the end of the year. This would ultimately reduce the debt-service burden for businesses and households, freeing up cash flow, while stimulating interest-rate-sensitive sectors such as residential real estate. Outside of a few coastal pockets, South African house prices have declined in real terms since 2008, so the country is due a residential property cycle. Lower rates and improved confidence could be the catalyst, with the listed property sector already showing strong recovery.

Subdued inflation and lower interest rates supported solid consumer spending at the start of 2026, but without rapid job creation there is a limit to how fast household consumption can grow. This means fixed investment spending must rise on a sustained basis to lift overall GDP growth.  

5. Given that fiscal consolidation remains a priority, how do you see the balancing act between economic expansion and debt stabilisation playing out? 

It helps a lot that bond yields have declined over the past year. This means that there is less of a trade-off, and rather a positive feedback loop between growth and debt stabilisation. 

In contrast, between 2010 and 2020, we saw a negative feedback loop where economic performance deteriorated sharply, and with it, government’s creditworthiness. The latter put upward pressure on bond yields, which in turn weakened economic growth. This, in turn, led to lower tax revenues, further losses in creditworthiness and higher borrowing, which further depressed growth. We appear to be in the early stages of reversing this vicious cycle.

The Treasury is also trying to tilt the composition of spending towards capex, even as it maintains overall spending discipline. 

6. Given the extreme geopolitical volatility right now, what should intermediaries tell their clients? 

The biggest risk geopolitics may pose to investors is that they overreact to such developments. Over the long-term, portfolio performance is not determined by geopolitical shocks but by the simple act of maintaining an appropriate equity exposure. 

One can tilt around this as markets become cheap or expensive, but trading in and out of markets based on news-flow is a recipe for destroying value.