Economic Market Report - August 2023

Smart Money Moves
6 September 2023
5 min read

South Africa

In July 2023, the South African Reserve Bank's Monetary Policy Committee (MPC) maintained the key repo rate at 8.25%, which is the highest in 14 years, as expected. This indicates a pause in their series of rate hikes after ten consecutive increases. However, the MPC emphasized that this doesn't signal the end of their tightening strategy. They will continue to observe the inflation rate in the coming months to guide their future choices.

The inflation rate, which was at 5.4% in June, still exceeds the MPC's target midpoint of 4.5%. There's a possibility that inflation could rise to over 6.0% due to higher oil prices and a weaker Rand. However, a slower rise in food prices might bring it back down to around 4.5% in the last quarter of 2023. The upcoming interest rate decisions by the FED in their next two meetings are crucial for the MPC's considerations.

Concerns about a potential recession in the latter part of the year persist for the South African economy. Retail trade declined by 1.4% in May 2023 compared to the previous year, continuing a six-month streak of contraction. On a positive note, manufacturing production in May 2023 increased by 2.5% year-on-year, maintaining optimism that the economy might avoid a severe recession in 2023. The expectation for the annual economic growth rate remains at 0.4%.


The U.S. economy is doing well despite the Federal Reserve's ongoing increase in the bank interest rate. In July, the unemployment rate dropped further to 3.5%, lower than the previous two months' 3.6% and better than the expected 3.6%. However, on August 2, 2023, Fitch surprised the stock markets by downgrading the U.S. sovereign debt. U.S. Treasury Secretary Janet Yellen criticized Fitch's decision, but investors saw it as reasonable, urging the government to address its substantial debt and uncertainty around the debt ceiling process.

Morgan Stanley Research is optimistic that the U.S. economy can achieve a "soft landing," meaning it can slow down its growth without entering a recession. Positive indicators include the U.S. housing cycle, spending and income patterns, a steady job market, and decreasing inflation. Yet, there's still a risk of recession due to potential turmoil in the banking sector leading to credit tightening.

Retail sales in the U.S. increased modestly for the third consecutive month in June. The Commerce Department reported a 0.2% rise, slower than the previous month's 0.5% growth and below the 0.5% increase predicted by economists.


The European Commission has increased its expectations for Europe’s economy to grow faster than previously predicted in the upcoming years. Despite facing challenges like high inflation and increasing interest rates, the Commission stated that the 27 members of the EU are now anticipated to achieve an average growth of 1% in 2023, up from the earlier estimate of 0.8%. Additionally, the growth forecast for 2024 has been adjusted to 1.7% from 1.6%. For the Eurozone’s 20 members, an average growth of 1.1% is predicted for this year, with a further increase to 1.6% expected next year. In comparison, the UK’s economy is projected to perform less strongly, with growth rates of 0.25% in 2023 and 0.75% in 2024, as forecasted by the Bank of England. The Commission noted that concerns about a recession have lessened, and the EU’s growth in the current year has exceeded earlier expectations set in February. The Eurozone’s current economic status is influenced by conflicting economic factors. Fortunately, the region- avoided energy shortages and a severe recession during the winter, which many analysts had feared. The job market remains strong, supporting consumer spending, and there’s an improvement in economic sentiment. However, there are challenges too. Inflations remains persistently high, interest rates are being raised, and there’s ongoing uncertainty due to geopolitical issues.

Emerging Markets

The first half of 2023 has been tough for emerging market economies (E.M.). Hopes for a robust recovery in China didn’t materialise as the initial economical data fell short of predictions, leading to a slowdown. Yet, there’s optimism for the latter part of the year, particularly in Asian markets. This positivity is fuelled by factors like higher local demand, nearshoring, and helpful monetary and fiscal policies. This ongoing recovery is anticipated to create anticipated to create larger growth gaps compared to developed markets and bring inflation closer to the desired levels, which will be advantageous for the region.

Latin America is surpassing predicted market performance due to higher energy and materials prices. While the US is heading towards a slight economic downturn and China is expecting moderate GDP growth, Latin America is set for even more substantial expansion. The region’s central banks have been proactive in raising interest rates ahead of the Federal Reserve to tackle inflation. This has led to a notable interest rate difference that is shielding currencies from worldwide market instability.

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