The Coffee Table Economics (CTE) with Anchor note by Casey Sprake is distributed intermittently. It is a collection of Casey’s thoughts and perspectives on key economic factors, socio-political events, and the multiple dynamics shaping markets globally and in South Africa (SA).
Executive summary
In this week’s edition, we highlight the following:
- The Midas touch: Gold, a unique and multifaceted player in the global economy, serves as a store of value, an inflation hedge, and a cultural symbol of wealth and prosperity. Its significance extends beyond individual nations, shaping financial systems, investment strategies, and cultural traditions worldwide. The contrasting supply-demand dynamics in countries like India, China, and Turkey underscore the metal’s economic complexity, providing a fascinating insight into its global impact.
- Beyond size: How GDP per capita redefines global economic power. In the current global economy, Gross Domestic Product (GDP) per capita provides a lens to identify economic success stories beyond the traditional powerhouses, revealing how countries leverage unique assets to create wealth.
- Anchoring inflation: The importance of inflation expectations. The South Africa Reserve Bank’s (SARB) focus on inflation expectations, as captured by the Bureau of Economic Research (BER) survey, underscores their importance as both a reflection of economic sentiment and a tool for informed policymaking. While the recent decline in short-term expectations is encouraging, the persistence of higher long-term household expectations underscores the ongoing challenge of achieving a stable and balanced economic environment.
The Midas touch
Gold, a unique and multifaceted player in the global economy, serves as a store of value, an inflation hedge, and a cultural symbol of wealth and prosperity. Its significance extends beyond individual nations, shaping financial systems, investment strategies, and cultural traditions worldwide. While India and China dominate global gold demand, they face contrasting supply scenarios. According to the latest data from the World Gold Council, as of 2023, India, with its deep cultural attachment to gold, consumes 50 times more than it produces domestically. Jewellery and gold bars drive this demand, with the metal symbolising wealth, status, and spiritual significance, particularly in Hindu and Jain rituals. With a population exceeding one billion, India leads global gold demand.
China, ranking second, presents a different dynamic. It produces more than one-third of the gold it demands. Gold is valued for personal wealth and strategically held by the People’s Bank of China (PBOC) as a hedge against inflation and currency devaluation. Since 2022, China has expanded its gold reserves by 316 tonnes, underscoring the metal’s role in economic resilience. The US ranks third in gold demand, consuming 249 tonnes in 2023, supported by a domestic supply of 167 tonnes. Turkey follows, with mine production of 37 tonnes—only one-fifth of its demand of 202 tonnes—highlighting its dependence on imports to meet domestic needs.
Gold’s importance extends beyond its cultural and industrial applications. It is a cornerstone of central bank reserves, providing a hedge against economic uncertainties. Unlike fiat currencies (a national government-issued currency that is not pegged to the price of a commodity such as gold or silver), gold retains its intrinsic value. It is not subject to inflation or devaluation. In times of global financial instability, gold prices typically rise, reflecting its role as a safe-haven asset. Moreover, gold facilitates international trade and investment, particularly in economies where currency fluctuations are frequent. Its liquidity and universal recognition make it a trusted medium of exchange. Central banks, especially in emerging markets (EMs), increasingly view gold as a tool to diversify reserves and reduce reliance on foreign currencies.
The bottom line
The contrasting supply-demand dynamics in countries like India, China, and Turkey underscore the metal’s economic complexity. While nations like China leverage domestic production to meet a significant portion of demand, others, such as India and Turkey, rely heavily on imports, making gold an essential component of their trade and economic planning. Moreover, gold’s enduring value lies in its ability to transcend cultural, economic, and geopolitical boundaries. Its role as a store of value, a hedge against inflation, and a symbol of prosperity ensures its continued importance in shaping the global economy.
Beyond size: How GDP per capita redefines global economic power
GDP is one of the most commonly used measures to evaluate economic performance. However, GDP per capita (calculated by dividing a country’s total economic output by population) provides a more nuanced view by reflecting the average economic output per person. This measure allows for meaningful comparisons of economic well-being across nations, factoring in population size and offering insights into the standard of living. While countries like the US, China, India, and Germany dominate in total GDP rankings, GDP per capita tells a different story. Of these economic giants, only the US ranks near the top in GDP per capita, highlighting its relatively high wealth distribution across its population. In contrast, nations with smaller populations but substantial economic output often claim the highest GDP per capita figures, revealing the significant economic impact of wealth concentration in specific regions or industries.
According to the IMF, Luxembourg currently leads global GDP per capita rankings, with an astounding US$144,000 per person for a population of just 669,000. This small Western European nation owes much of its wealth to its robust financial sector, which contributes 25% of its GDP, and its reputation as a top-tier tax haven. Macao follows closely in second place, benefitting from its tax policies and thriving gambling and tourism industries. Interestingly, only two of the top 14 economies by GDP per capita in 2024 have populations exceeding 10mn people. This trend underscores how smaller nations or territories can achieve high economic output per capita by leveraging niche advantages, such as low taxes, specialised industries, or strategic trade positioning. It is worth noting that the rankings have also evolved. Ireland, Guyana, Denmark, and Taiwan have joined the top tier since 2014, while countries like Kuwait, Saudi Arabia, Andorra, and Hong Kong have dropped off. These shifts reflect broader changes in global economic dynamics, including the rise of technology-driven economies, resource booms, and policy adjustments in key regions.
GDP per capita is invaluable for comparing living standards and economic efficiency across countries. High GDP per capita often correlates with better infrastructure, education, and healthcare, although it does not account for income inequality or non-economic factors influencing quality of life. It also highlights the importance of population size in assessing economic performance. For example, a small, affluent nation like Luxembourg can have a higher GDP per capita than a large, developing country with a significant total GDP but widespread poverty.
The bottom line
In the current global economy, GDP per capita provides a lens to identify economic success stories beyond the traditional powerhouses, revealing how countries leverage unique assets to create wealth. As global economic dynamics continue to shift, this measure will remain a crucial tool for understanding prosperity and development in an increasingly interconnected world.
Anchoring inflation: The importance of inflation expectations
Inflation expectations are a critical driver of economic stability and policymaking. Since 2001, the SARB has relied on a quarterly survey conducted by the BER to measure inflation expectations and other macroeconomic variables. This survey gathers insights from four key social groups: analysts, businesspeople, trade union representatives, and households. Each group offers a unique perspective on inflation, reflecting their respective economic roles. Businesspeople influence real-economy prices, analysts shape financial markets, and trade unions and households—through their roles as employees—affect wage dynamics, a significant driver of inflation.
The most recent survey results for 4Q24 strongly demonstrate the dynamic nature of inflation expectations. Between the 3Q24 and 4Q24, reported headline inflation fell sharply from 4.6% in July to 2.9% in November. In response, businesspeople and trade union representatives lowered their inflation expectations for 2025 and 2026. Analysts, whose prior expectations were already more conservative, made minor adjustments. Collectively, these groups now project (on average) for inflation to decline to 4.5% in 2025, down from 4.8% in the previous survey. This is the lowest level of inflation expectations recorded since mid-2021, when inflation was 4.7%, before peaking above 7% in early 2023. The average inflation expectation across all groups for the next five years is 4.6%, marginally lower than prior forecasts and near the SARB’s target midpoint of 4.5%.
Households’ expectations tell a more nuanced story. Their short-term inflation outlook improved slightly, with the one-year-ahead forecast declining from 6.9% in 3Q24 to 6.6% in 4Q24. However, these expectations have remained relatively stable throughout the year, starting at 6.7%. More concerningly, households’ five-year-ahead expectations have remained stuck at around 10% since 2023, indicating persistently elevated concerns about future inflation. The broader economic outlook remains subdued. GDP growth expectations remain modest at 1% for 2024 and 1.5% for 2025. Wage growth projections also remain below 5% for both years, with trade unionists notably revising their 2025 wage growth forecast downward by 0.8 percentage points to 5.1%.
Overall, the SARB’s Monetary Policy Committee (MPC) closely watches these survey results, as inflation expectations are a crucial factor in determining interest rate decisions. The MPC acts when inflation expectations rise, exceed the target range, or if other inflation indicators deteriorate. Inflation is often described as “self-fulfilling” because expectations about future inflation can directly influence behaviours that make those expectations a reality. This phenomenon arises because of the interconnected roles of businesses, workers, consumers, and financial markets in the economy. These feedback loops can create a cycle where the expectation of inflation leads to behaviours that generate actual inflation, reinforcing the original expectation. Central banks, like the SARB, monitor and manage inflation expectations precisely because of this self-fulfilling nature. If expectations remain well-anchored—aligned with the central bank’s target range—this helps prevent inflation from spiralling out of control, fostering economic stability. Conversely, unanchored expectations can lead to persistent inflation without significant changes in underlying economic fundamentals.
The bottom line
The SARB’s focus on inflation expectations, as captured by the BER survey, highlights their importance as both a reflection of economic sentiment and a tool for informed policymaking. While the recent decline in short-term expectations is encouraging, the persistence of higher long-term household expectations underscores the ongoing challenge of achieving a stable and balanced economic environment.
