Economic Market Report - February 2023

Smart Money Moves
27 March 2023
5 min read

In February, the global financial markets were unstable and negative after the release of the US non-farm payrolls report, which caused uncertainty. The report showed that more jobs were created in January than expected, and earnings per hour were higher than anticipated. This led the Federal Reserve to increase its bank rate by 0.25%, causing the dollar to gain value against other currencies. Equity markets worldwide struggled, with the Dow Jones in the US losing 3.1% and the S&P500 losing 1.3%. The ALSI in South Africa traded 1.5% lower. However, China’s economy is improving after easing Covid restrictions, with manufacturing posting its best performance in over a decade, services activity increasing, and the housing market stabalising.

Despite global inflation decreasing slightly, it remains high, and there are concerns about potential growth risks. As a result, global central banks are remaining cautious and favouring maintaining high policy rates to avoid prematurely easing financial conditions, risking inflation getting out of control.

South Africa

During February, South Africa experienced a mixed economic situation. There were ongoing power outages from Eskom, the retirement of Eskom CEO Andre De Ruiter, and the country was grey-listed for financial compliance concerns. However, the budget was considered good under the circumstances, with no major tax increases, an effort to privatise electricity generation, and a reduction in the budget deficit to GDP. Ongoing loadshedding will increase government debt, and there is skepticism about whether the R440 billion investment in infrastructure and whether water will be free of state capture.

The release of the Federal Reserve’s minutes, combined with the grey-listing by the Financial Action Task Force, led to a sharp decrease in most shares on the JSE, and a depreciation of the rand. However, there was positive news when the latest unemployment rate came down by 0.2% in Q4 of 2022 to 32.7%, which is 2.6% lower than the previous year. This news caused the rand and equity prices to recover sharply during the last week of the month.

South Africa’s annual inflation rate eased for the third straight month to 6.9% in January 2023, doen from 7.2% in the prior month. However, it remained above the South African Reserve Bank’s target range of between 3% to 6%, which is a concern. It is expected that the Monetary Policy Committee will increase the repo rate by 25 basis points at their March 2023 meeting to address this issue.

Figure 1: South Africa’s inflation rate still high


The US economy is expected to experience moderate growth in the coming years, with a projected GDP increase of 0.8% in 2023 and 1.8% in 2024, following a 2.1% increase in 2022. However, inflation has become a significant concern, with the Consumer Price Index (CPI) remaining high at 6.4% as of February 2023.

The US job market started the year off strong with the addition of 517,000 jobs in January, and the unemployment rate dropped to 3.4%, the lowest it has been since May 1969. However, the Federal Reserve has been forced to act due to high inflation rate and robust job market. As a result, the Fed raised its bank rate and is maintaining an aggressive stance toward future rate changes.

The minutes from the Feb’s February meeting indicated that the risk of inflation is a key factor shaping policy outlook, further highlighting that interest rates will need to remain elevated until inflation is on a clear path to 2%. This means that the Fed will likely continue to raise interest rates in the future to curb inflation. The rising interest rates have also caused the value of the US dollar to increase significantly. The US dollar index, which measures the currency against a basket of other currencies, has already risen by 17% since the beginning of the year. This rise in the US dollar’s value can have both positive and negative effects on the US economy, by making imports cheaper and potentially making US exports more expensive.

Figure 2: US Fed Funds rate March 2022 to February 2023


The European Commission reported in February 2023 that the EU economy grew strongly in the first half of 2022 but slowed down in the third quarter. Despite adverse shocks, the EU economy avoided a contraction in the fourth quarter, and the annual growth rate for 2022 is now estimated at 3.5% in both the EU and the euro area. Gas storage levels are higher than in previous years, and the wholesale gas prices have fallen. The labour market has remained strong, with a low unemployment rate. Economic activity is expected to avoid a contraction in the first quarter of 2023. However, high energy costs and rising inflation are affecting consumers and businesses, reducing their purchasing power. Monetary tightening is expected to continue, which will weigh on business activity and investment.

Figure 3: Euro Area inflation rate February 2022 to January 2023

Emerging Markets (EMS)

Deloitte’s February report says that inflation will be a key factor in determining the economic future of emerging markets in 2023. In 2022, countries in Eastern Europe, Latin America and parts of Africa had high inflation, worsened by the Russia-Ukraine conflict which disrupted supplies. The US Federal Reserve raising interest rates weakened emerging market currencies, therefore many countries raised their interest rates to prevent currency depreciation and control inflation. However, some Asian countries like Vietnam, Indonesia, the Philippines, Singapore, Malaysia, and Thailand had low inflation rates of less than 3% in January 2022. The pandemic also limited demand and inflation in countries like China and Japan, due to ongoing restrictions. Overall, inflation will be an important factor for emerging markets in 2023, and those that can control it may have a better economic outlook.

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