Economic Review | The March Edition

Consumer inflation in the US increased slightly in February compared to January. In March, US President Donald Trump imposed tariffs on steel and aluminum imports. Chinese officials introduced a special plan to boost the economy and are considering various measures to stabilise the Chinese stock market. The UK economy unexpectedly contracted in January after growing in December, increasing pressure on the UK government to stimulate economic growth. On the domestic front, the US issued an executive order to immediately suspend funding for the President’s Emergency Plan for AIDS Relief (PEPFAR) to South Africa.

US inflation eases

The US consumer price index (CPI) ticked up by a seasonally-adjusted 0.2% for February, taking the headline inflation rate to 2.8% year-on year (y/y), which was down from the 3% y/y rate in January. The drop is largely attributed to lower energy costs. Core inflation (excluding food and energy prices) also rose by 0.2% for the month and was at 3.1% y/y, the lowest reading since April 2021. Both the headline and core inflation increases were below forecasts of economists surveyed by Dow Jones, who predicted a 0.3% increase in both indices to 2.9% y/y and 3.2% y/y respectively. The inflation data did not incorporate what is to come and what has already occurred on tariffs and their associated policy uncertainty.

Source: US Bureau of Labour Statistics

The February inflation report was released at a critical time for the US economy and financial markets, which were shaken by President Donald Trump’s escalation of a trade war through increasing trade tariffs, raising concerns about growth prospects. Trump’s 25% duties on steel and aluminum took effect in March, prompting retaliatory measures from the European Union (EU). He also imposed 20% tariffs on goods from China. Central bank policymakers generally consider tariffs will have modest impacts on inflation and, as they are often once-off measures, will not have a lasting impact on longer-term gauges. Markets expect the US Federal Reserve will resume cutting interest rates in June and to have implemented a total of 0.75 percentage points of cuts by the end of 2025.

China launches action plan to boost consumption

The General Office of the Central Committee of China has unveiled a “Special Plan to Boost Consumption” aimed at driving consumer spending, expanding domestic demand, and improving consumption capacity through higher incomes and reduced financial burdens. The report also details “various measures” to stabilise the stock market and create additional bond products suitable for individual investors.

In his annual government work report, China’s Premier Li Qiang said boosting consumption was the top priority for the upcoming year. Chinese policymakers have increasingly recognised the need to address deflationary pressures. China is currently experiencing a weak consumer environment, with the February CPI showing its largest decline in over a year and the PPI remaining in negative territory since October 2022. The plan emphasised promoting both inbound and domestic tourism, with specific support for developing ice and snow regions into globally-recognised winter tourism destinations. The plan includes expanding unilateral visa-free arrangements and optimising regional entry policies, among other measures to strengthen the economy.

This plan shows China’s commitment to tackling long-term structural challenges, including wage stagnation, the negative wealth effects of the property and stock markets, and an inadequate social safety net. In an annual parliamentary session in January, Chinese authorities also committed to issuing an additional 300 billion yuan (US$41.45 billion) in ultra-long special treasury bonds to support consumer subsidies. The plan outlines measures to boost the incomes of urban and rural residents, as well as farmers, through initiatives like employment support and the continuation of the unemployment insurance policy. Despite ongoing challenges in the export sector, Chinese authorities are focused on stimulating and revitalising the domestic economy.

UK economy unexpectedly shrinks

The UK economy unexpectedly contracted by 0.1% in January, which was less than December’s 0.4% gain. According to the Office of National Statistics (ONS), the decline was largely driven by the effects of bad weather on the manufacturing and construction sectors, despite a solid performance in the services sector, which accounts for around 80% of the UK economy. Economists had forecast the economy would grow by 0.1% in January.

The UK government has made economic growth a top priority, but economic weakness continues to influence Chancellor Rachel Reeves’ decisions. Reeves said that the government needed to act “further and faster” on economic issues, while the Conservative Party criticised the approach, calling it a “growth killer”. According to the ONS, the economy grew by an estimated 0.2% in the three months to January, but the overall economic outlook for the UK was sluggish growth. Construction and oil and gas extraction were weak, but were partly balanced by stronger retail sales, particularly in food stores, as people increasingly ate and drank at home.

With tax rises coming into force in April, concerns remain that economic growth will remain slow for the foreseeable future. Businesses have warned that paying more in National Insurance, along with an increase in minimum wages and a cut in business rates relief, could affect the economy’s ability to grow, as employers expect to have less cash for pay increases and to create new jobs. Businesses are facing new uncertainty from the Trump tariffs, while government is under pressure to increase defence spending.

For your interest

1. Trump imposes tariffs on steel and aluminum imports

• Trump’s new tariffs on all steel and aluminum imports came into effect in March. Both metals are now taxed at 25% across the board – with Trump’s order to remove steel exemptions and raise aluminum’s levy from his previously-imposed 2018 import taxes.
• The European Union has taken retaliatory trade action, promising new duties on US industrial and farm products. The measures will cover goods from the US worth some €26 billion (US$28 billion) and will not only affect steel and aluminum products, but also textiles, home appliances and agricultural goods.

(Source: PBS News, March 2025)

2. Eurozone consumer morale at a three-month low

• Consumer confidence in the Eurozone fell by 0.9 points to -14.5 in March 2025, the lowest in three months, in line with preliminary estimates.
• In the broader EU, consumer sentiment dropped by one point to -13.9, as consumers became markedly more pessimistic about the future general economic situation in their respective countries and, to a lesser extent, about their household’s past and expected financial situation. At the same time, there was a slight improvement in consumers’ intentions to make major purchases in the coming 12 months.

(Source: Trading Economics, March 2025)

3. South African manufacturing production declines

• Manufacturing production in South Africa declined by 3.3% y/y in January 2025, deepening from a 1.2% y/y drop in December 2024. This marked the third consecutive monthly contraction and the steepest decline since June 2024, driven by weaker output in key sub-sectors.
• On a seasonally-adjusted monthly basis, industrial output edged up by 0.2% in January, recovering slightly from a revised 2.2% decline in December but falling short of market expectations for a 0.9% increase.

(Source: Stats SA, March 2025)

4. South African Budget Speech is presented

• After an unexpected delay, South Africa’s 2025 Budget Speech was finally delivered on Wednesday, 12 March, sparking intense discussions about its implications for the country’s economy, citizens, and businesses.
• South Africa’s economic growth projections remain modest at best. Growth is estimated at 0.9% for 2025, while the Budget assumes an optimistic growth rate of 1.9% for 2026.

(Source: Daily Maverick, March 2025)

5. SA faces uphill climb after Trump cuts aid

• President Trump signed an executive order to immediately suspend the President’s Emergency Plan for AIDS Relief (PEPFAR) funding to South Africa as part of his reconfiguration of US foreign relations and halt of foreign aid.
• The Trump administration also took issue with South Africa’s adoption of a controversial land reform law that allows the government to expropriate land if it deems it in the public interest.

(Source: GIS Reports Online, March 2025)

SA’s interest rates left unchanged

In its March meeting, the South African Reserve Bank (SARB) decided to keep interest rates steady at 7.5%, with the prime rate at 11%, citing global economic uncertainty and rising inflation risks. Concerns were raised over trade tensions, changes in long-standing geopolitical relationships, and high inflation in major economies such as the US, Eurozone, and UK.

SARB Governor Lesetja Kganyago emphasised that the central bank was taking a cautious stance on rate cuts. He said South Africa has experienced rising confidence over several quarters, with a reduced country risk premium and lower bond yields. However, he also noted that the global economy remains unstable, with domestic uncertainties that could threaten these positive trends. While domestic inflation remains below the 4.5% midpoint of the SARB’s 3-6% target range, it has risen slightly in recent months. South Africa’s headline inflation rate remained steady at 3.2% y/y in February, with increases in the prices of housing and utilities, food and alcoholic beverages, and restaurants and accommodation, offset by declines in the services sector. Kganyago warned that inflation expectations were nearing the midpoint but, for now, inflation “appears to be contained.”

Market overview

Global overview

Developed market (DM) equities recorded their second consecutive fall in March, with the MSCI World Index ending the month at -4.45% m/m, pushing them into negative territory for the first quarter of 2025. US megacap tech stocks were amongst the worst performers, resulting in a significant drop in the Bloomberg Magnificent 7 Index. Tariffs continued to weigh on investor sentiment, as March started with confirmation that Trump would push ahead with tariffs on Canada, Mexico and China. Emerging market (EM) equities performed better in the month than DM equities, ending positively at 0.67% month-on-month (m/m) in US dollars. Global property was in negative territory at -2.16% m/m, but global bonds were in positive territory at 0.62% m/m, both in US dollars. The FTSE Index lost -2.25% m/m in pounds from a previous monthly gain. The Euro Stoxx 50 Index ended in negative territory for the month at -3.80% m/m and the S&P 500 was the biggest detractor for the month at -5.63% m/m. The Dow Jones Index ended the month in negative territory at -4.06% m/m in US dollar terms, along with the Nikkei at -3.38% m/m in yen.

Local overview

South African equity markets ended the first quarter on a positive note. The FTSE/JSE All Share Index gained 3.55% m/m, despite turmoil in global equity markets. Industrials and Property were both in negative territory at -2.17% m/m and -0.90% m/m respectively. Resources was the biggest gainer for the month, at 18.37% m/m. Financials and Cash were both in positive territory at 0.18% m/m and 0.64% 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 0.19%. Bonds of 1-3 years were positive at 0.80% m/m along with bonds of 3-7 years at 0.97% m/m. Bonds of 7-12 were positive at 0.41% m/m, but bonds of 12 years and above were at -0.12% m/m. The rand strengthened against the US dollar by 0.98% m/m but weakened against the euro by -2.78% m/m. It weakened against the pound by -1.49% m/m.