Economic Review | The February Edition

Global economic trends presented a mixed picture in the latest quarter. US economic growth slowed in the fourth quarter, but consumer spending grew over the same period. Overall, the US economy declined in 2024 relative to 2023, although by a small percentage point. Inflationary pressures persisted in key economies, with the UK inflation rate recording a 10-month high inflation rate and Japan reaching a two-year peak. This prompted the central bank to adjust the degree of monetary accommodation to avoid yen depreciation. Economic sentiment improved for the month in both the Eurozone and European Union (EU). On the domestic front, South Africa saw positive developments, with retail sales expanding both in the final quarter and over the year. Encouragingly, the unemployment rate declined across all demographics, including youth, as job creation gained momentum across multiple sectors.

The US economy slowly detracts

The US government confirmed in February that the country’s economic growth slowed in Q4 2024. The Commerce Department’s Bureau of Economic Analysis (BEA) said in its second GDP estimate that US gross domestic product (GDP) increased at a 2.3% year-on-year (y/y) rate in Q4 2024 following a 3.1% y/y gain in Q3 2024. Although Reuters-polled economists had expected GDP growth to be unrevised, the growth was revised up by less than 0.1%, which after rounding matched the 2.3% y/y rate that was previously estimated. Improvements to government spending and exports were partly offset by downward revisions to consumer spending and investment. Despite that, consumer spending, accounting for more than two-thirds of the US economy, grew at a 4.2% y/y rate in Q4 2024, in line with the estimated rate. The economy grew 2.8% y/y in 2024 from 2.9% y/y in 2023, showing a decline of 0.1% over those periods.

US GDP is expanding well above the 1.8% y/y rate viewed by the US Federal Reserve (Fed) policymakers as the non-inflationary growth pace. However, there are signs that growth cooled further early in Q1 2025 with snowstorms and cold temperatures covering many parts of the US in January. These weighed on retail sales and the housing market and restrained job growth. Already imposed or planned import tariffs by President Donald Trump in his first month in office also impacted consumer and business confidence. Fears are mounting that tariffs will increase prices of goods and constrain the Fed’s ability to continue cutting interest rates. Efforts by the Trump administration to slash spending and shrink the government, resulting in unprecedented layoffs of federal workers, are also seen posing a risk to spending.

UK inflation hits the highest level in months

Headline inflation in UK the rose to the highest level in 10 months, from 2.5% y/y to 3% y/y in January. The figure is above the 2.8% y/y predicted by many economic experts. According to the Office for National Statistics, the rise in the inflation rate was driven by airfares dropping less than usual in January, higher costs for private schools after the government-imposed VAT on fees and increased costs for food and non-alcoholic drinks. Services inflation, a key measure of underlying price pressures for the Bank of England (BoE), rose to 5% y/y in January, up from 4.4% y/y in December, but was below the BoE’s expectations of 5.2%. Core inflation, which excludes energy, food, alcohol and tobacco, rose to 3.7% y/y in January from 3.2% in December, in line with analysts’ expectations.

Source: Office for National Statistics

The UK Treasury says that the road to achieving the BoE’s 2% inflation target is bumpy, however, they are confident on their change plan to ensure that they are kick-starting UK economic growth. Treasury believes that the BoE may have to change its priorities and keep interest rates higher for longer. UK economic growth has been weak, with official data showing a marginal expansion of 0.1% in Q4 2024, following the stagnation in Q3 2024. BoE Governor Andrew Bailey reiterated the central bank’s intention to take a gradual and careful approach to interest rate cuts, adding that a likely further rise in inflation this year was among the challenges they faced.

BoJ inflation rises to 2-year high

Japan’s inflation has hit its highest level since January 2023, climbing 4% y/y in January 2024. The headline inflation rate has remained above the Bank of Japan’s 2% target for 34 straight months. The core inflation rate rose from 3% y/y in December 2024 to 3.2% y/y in January 2025 and beat economists’ expectations of 3.1%, according to a Reuters poll. This is the highest core inflation figure since June 2023. The so called “core-core” inflation rate, which strips out prices of both fresh food and energy and is closely monitored by the BoJ, rose marginally from 2.4% y/y in December 2024 to 2.5% y/y in January 2025.

The inflation figures boost the case for rate hikes by the BoJ, which deliberated tightening them at its January meeting, with its summary of opinions warning of inflation risks and weakness in the yen. The BoJ summary states that it will be necessary to adjust the degree of monetary accommodation to avoid the yen’s depreciation and the overheating of financial activities, both of which appear to be due to excessively high expectations of continued monetary easing. The inflation data came after Japan’s GDP growth beat expectations on a q/q and y/y basis, rising 0.7% and 2.8% respectively. However, full-year GDP growth for 2024 slowed to 0.1%, a sharp fall from the 1.5% growth seen in 2023.

For your interest

1. US industrial production better than expected

• Industrial output in the US increased by 0.5% y/y in January after rising by a revised 1.0% y/y a month earlier, the Fed said in a report. This was above market expectations for a 0.3% y/y rise in January.
• The Fed said manufacturing output fell 0.1% y/y, held down by a 5.2% decrease in the index for motor vehicles and parts. The utilities index rose 7.2%, as cold temperatures boosted the demand for heating. The mining index fell -1.2%.

(Source, The Economic Times, February 2025)

2. Economic sentiment up in the Eurozone and EU

• In February 2025, the Economic Sentiment Indicator increased by 1.1 to 97.1 points in the EU, and by 1.0 point to 96.3 in the Eurozone. The Employment Expectations Indicator dropped in both the EU (by -1.2 points to 98.1) and the Eurozone (by -1.5 points to 97.0).
• The strengthening of the Economic Sentiment Indicator in the EU stemmed from improved confidence in industry and among consumers, which was moderated by a decrease in construction confidence. Confidence in retail trade remained broadly unchanged and services confidence was stable.

(Source: European Commission, February 2025)

3. UK economy unexpectedly grows

• The UK economy unexpectedly grew by 0.1% y/y in Q4 2024, official figures showed, offering some respite from the downbeat economic picture facing Finance Minister Rachel Reeves, though longer-term challenges remain. GDP grew by 0.9% across 2024, after 0.4% growth in 2023.
• The UK was the best performing major European economy in the fourth quarter – with Germany and France shrinking and Italy stagnant – but trailed behind the US’s 0.6% growth. December’s growth reflected a robust performance by the UK’s large services sector, with wholesalers, film distributors, pubs and bars doing well, as did machinery manufacturers and pharmaceutical companies.

(Source: Reuters, February 2025)

4. SA retail sales expand in fourth quarter

• Retail trade sales in SA expanded by 2.1% y/y in Q4 2024, with general dealers and retailers specialising in clothing and textiles driving much of the upward momentum. There was, however, a fall in sales for food and beverages and household goods. The miscellaneous category ‘all other retailers’ also recorded a decline.
• For the calendar year, retail trade sales grew by 2.5% y/y in 2024 compared with 2023. Five of the seven retail groups were stronger, with general dealers a key driver of growth.

(Source: Stats SA, February 2025)

SA unemployment rate decreases

The Quarterly Labour Force Survey (QLFS) released by Stats SA recorded an unemployment rate decrease from 32.1% in Q3 2024 to 31.9% in Q4 2024. Moreover, Stats SA said the expanded unemployment rate in Q4 2024 remained unchanged at 41.9% from Q3 2024. The number of unemployed persons decreased by 20 000 to 8 million. This contributed to an overall increase of 112 000 (0.4%) in the labour force during the same period.

The QLFS survey results indicate an increase of 132 000 in the number of employed persons, bringing the total to 17.1 million in Q4 2024. Despite these gains, the number of discouraged work-seekers increased by 111 000 (3.3%), while those who were not economically active for reasons other than discouragement decreased by 93 000 (0.7%). The number of persons employed in the formal sector increased by 90 000 in Q4 2024, and the informal sector employment increased by 34 000 over the same period. Stats SA added that the youth aged between 15-34 years continue to face challenges in the labour market with the Q4 2024 results showing a decrease in the total number of unemployed youth of 133 000 to 4.7 million. Employed youth, on the other hand, recorded an increase of 37 000 to 5.8 million over the same period. As a result, the youth unemployment rate decreased from 45.5% in the Q3 2024 to 44.6% in Q4 2024.

Market overview

Global overview

Developed market (DM) equities ended in negative territory for February, with the MSCI World Index at -0.72% month-on-month (m/m) in dollar terms, as risk aversion increased. Weaker-than-anticipated economic data, weak US consumer and business sentiment, and increased geopolitical uncertainty to push investors into less risky parts of investment markets, contributed to the index’s decline. Conversely, Emerging Markets (EM) equities performed better for the month relative to DM equities, ending positively at 0.50% m/m in dollars. Global property and global bonds were both in positive territory for the month at 2.26% and 1.43% respectively in dollars. Although the FTSE Index was the biggest gainer for the previous month at 5.52%, it did not continue with the large gains into February. The index ended at 1.32% m/m in pounds. The shape of January returns continued into February with the Euro Stoxx 50 Index (3.48% m/m) which outperformed the S&P 500 (-1.30% m/m) for the second time this year. The Dow Jones Index ended the month in negative territory at -1.39% in dollar terms, along with the Nikkei at -6.05% in yen terms.

Local overview

SA equity markets struggled alongside global equity markets in February when FTSE/JSE All Share Index ended the month at -0.01% in rand terms. Industrials and Property were both in negative territory at -3.74% m/m and -0.29% m/m respectively. Resources posted the biggest losses for the month at -7.09%. However, Financials and Cash were both in positive territory at 0.97 m/m and 0.59% m/m respectively. The bond market was positive for short-term bonds but negative for long-term bonds with the FTSE/JSE All Bond Index ending the month positively at 0.07%. Bonds of 1-3 years were positive at 0.50% m/m along with bonds of 3-7 years at 0.28% m/m; however, bonds of 7-12 were negative at -0.03% m/m and bonds of 12 years and above at -0.12% m/m. The rand strengthened against the US dollar and euro at 0.52% m/m and 0.48% m/m respectively, but weakened against the pound at -0.80% m/m.