Back

Economic Market Report - February 2024

Author
Smart Money Moves
Date
4 March 2024
5 min read

The financial markets started the new year with nervousness, as they began to factor in the likelihood of decreasing global inflation rates following the Ukraine-Russia conflict. Despite a decline in the US core inflation rate from 4.1% to 3.9% since September, a dichotomy emerged in the country's economy. In Q4 2023, the US GDP grew by over 3.0%, generating over 700,000 new jobs in December 2023 and January 2024, with an unemployment rate of 3.7%. The US Federal Reserve (FED) maintained its bank rate in January, signalling no immediate plans to decrease it in the upcoming March meeting.

While there is reluctance from the FED to lower interest rates, the International Monetary Fund's (IMF) world economic outlook report, released at the end of the month, predicts a soft landing for the global economy in 2024. Titled "Moderating Inflation and Steady Growth Open Path to Soft Landing," the report forecasts global growth at 3.1% in 2024 and 3.2% in 2025, slightly higher than the October 2023 projection. The IMF attributes this to the resilience of the United States and several large emerging market economies, along with fiscal support in China.

The IMF anticipates that disinflation prospects will pave the way for a soft landing, allowing for a reduction in interest rates, improved financial conditions, and the possibility of a more relaxed fiscal policy. However, the report warns that the temporary boost in growth could pose a risk of a more costly adjustment later on.

South Africa

The economic growth outlook for South Africa in 2024 appears grim, with forecasts from the Treasury, Reserve Bank, and various research institutions indicating a sluggish trajectory. Initial predictions of a 1.5% growth in 2024 have been revised downwards to 0.6% for 2023, 1.0% for this year, and 1.3% for 2024 by the International Monetary Fund (IMF). The upcoming National budget announcement is expected to shed light on the government's perspective on growth and its plans to tackle challenges such as loadshedding, port disruptions, and the weakening Rand.

In January, the Reserve Bank's Monetary Policy Committee (MPC) maintained the repo rate at 8.5%, despite a decrease in the inflation rate to 5.0% in December. The MPC identifies the precarious and fluctuating rand exchange rate and the Federal Reserve's rate reduction pace as key risks.

Figure 1: South Africa’s inflation rate is coming down steadily.

The US experienced a notable surge in new job creation in January, leading to concerns about the Rand's vulnerability. Following the announcement, the currency briefly tested the R19.00/$ mark. In South Africa, retail trade contracted by 0.9% in November 2023 compared to the same month a year ago, aligning with market predictions. The manufacturing sector saw a 1.9% year-on-year growth in November 2023, and an anticipated increase of over 2.0% in December.

USA

The United States is expected to experience a decrease in economic growth, declining from 2.5% in 2023 to 2.1% in 2024 and further to 1.7% in 2025. This slowdown is attributed to the delayed impact of tighter monetary policy, gradual fiscal adjustments, and weakened labour markets affecting overall demand.

Despite a slight dip from 4.1% in September to 3.9% in December 2023, the annual core inflation rate in the US remains nearly twice the Federal Reserve's target of 2.0%.

US core inflation rate remains sticky downwards since September 2023. 

In December 2023, retail sales in the US rose by 0.6% compared to the previous month, surpassing expectations of a 0.4% increase. This marks the largest growth in three months, following a 0.3% uptick in November.

Europe

The Euro area is expected to rebound from a low rate of approximately 0.5% in 2023, largely attributed to the region's significant exposure to the conflict in Ukraine. Projections indicate a growth of 0.9% in 2024 and 1.7% in 2025. The recovery is anticipated to be driven by increased household consumption, as the impact of energy price shocks diminishes with a lower crude oil price of around $20 per barrel. This, coupled with a decrease in inflation and improved real income growth, is expected to contribute to the economic upturn.

Despite these positive prospects, the International Monetary Fund's (IMF) world economic outlook still revises the Euro area downward by 0.3 percentage points for 2024. In the United Kingdom, modest growth is projected, with an estimated 0.5% in 2023, increasing to 0.6% in 2024, and a sharper recovery of 1.6% in 2025. This rebound is attributed to easing financial conditions and a decline in disinflation.

In terms of inflation, the Euro area is anticipated to experience a gradual decrease over the next few years, albeit at a slower pace than observed recently. Factors such as diminishing cost pressures and the impact of the European Central Bank's (ECB) monetary policy are expected to contribute to a decline in headline inflation from 5.4% in 2023 to 2.7% in 2024 and further to 2.1% in 2025, eventually reaching 1.9% in 2026.

Emerging Markets

In 2024, it is anticipated that emerging markets and developing economies will experience a growth rate of 4.1%, with a gradual increase to 4.2% in 2025. China is expected to grow by 4.6% in 2024 and 4.1% in 2025. The IMF's global economic outlook predicts a decrease in growth for emerging and developing Asia, dropping from an estimated 5.4% in 2023 to 5.2% in 2024 and further to 4.8% in 2025, primarily influenced by China's economic trends. India is foreseen to maintain strong growth at 6.5% in both 2024 and 2025. In emerging and developing Europe, growth is projected to rise from an estimated 2.7% in 2023 to 2.8% in 2024 before decreasing to 2.5% in 2025. Meanwhile, in Latin America and the Caribbean, growth is expected to decrease from 2.5% in 2023 to 1.9% in 2024, primarily due to Argentina's negative growth resulting from significant policy adjustments for macroeconomic stability. The region is then predicted to rebound, reaching 2.5% growth in 2025.



T&Cs apply. NMG Financial Planning (Pty) Ltd (Co Reg No. 1999/002506/07) is an Authorised Financial Services Provider – FSP6713  

This communication is not advice or tax advice and does not amount, under the Financial Advisory and Intermediary Services Act, to a proposal or personal recommendation or guidance, nor is it a recommendation regarding any financial product or service. The funds, and their administrators, and these entities’ officers do not take liability for any action you take or loss you suffer arising from this communication, as you will need to obtain advice from a registered financial advisor so that your own circumstances can be taken into account.

Related
Posts

chevron-right linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram