Economic Review | The January Edition

US employment data for January was cause for optimism, as non-farm payroll data showed jobs were added in December. China’s stimulus package helped to boost economic growth in 2024, enabling it to meet government’s annual growth target while presenting an opportunity for more growth. The Bank of Japan raised interest rates to the highest level in 17 years and may push them up to 1%. US retail sales were positive for the month due to a positive holiday shopping season. The European Central Bank cut interest rates to enable inflation to reach its targeted levels. South Africa’s President Cyril Ramaphosa signed the Expropriation Bill into law, arousing controversy both locally and globally. South Africa’s Consumer Price Index (CPI) dropped below the South African Reserve Bank’s target, which encouraged the Reserve Bank to cut rates.

US non-farm payrolls finish strong for the year

The December 2024 US jobs report showed a strong finish to the year. Non-farm payrolls added 256 000 jobs in December, against market expectations of 153 000. The figure was then revised up by 51 000 jobs, taking the total non-farm payroll employment for the month to 307 000. This is the largest increase since March 2024. It is largely attributed to growth in the health care (adding 46 000 jobs), social assistance (adding 18 000 jobs) and government (adding 23 000 jobs) sectors. Outside these sectors there was little change, although construction and manufacturing posted small losses.

The Bureau of Labour Statistics revised the total non-farm payroll employment for November upwards by 49 000, from 212 000 to 261 000. Taking these revisions into account, combined employment in November and December was 100 000 higher than previously reported. The unemployment rate unexpectedly fell to 4.1% in December from 4.2% in November, highlighting the economy’s resilience. The number of unemployed people remained little changed at 6.2 million. The labour force participation rate (indicating the percentage of working-age individuals who are employed or actively seeking work) was unchanged at 62.5% for December 2024.

China’s economic growth meets target

China achieved an economic growth rate of 5% in 2024, driven by strong exports, a government stimulus package, and increased investment in manufacturing and industrial equipment. Although the country’s growth target for the year was reached, the economy continues to face neutral domestic demand, persistent deflationary pressures, and flailing property and equity markets. Chinese citizens believe the country’s living standards are worsening as they are not experiencing the benefits of industrial and export recovery.

Source: LSEG Datastream, Reuters

December data showed industrial output far outpacing retail sales, and the unemployment rate ticking higher. This highlights the supply-side strength of an economy running a trillion-dollar trade surplus, but also its domestic weakness. Analysts quoted by Reuters said that if the bulk of the extra stimulus Beijing has lined up for the year keeps flowing towards industrial upgrades and infrastructure instead of households, it could worsen overcapacity in factories, weaken consumption, and increase deflationary pressures. They said that to deliver a truly sustainable growth recovery, China needs to ease fiscal and monetary policy, resolve the protracted property crisis, reform its tax and social welfare systems and alleviate geopolitical tensions.

UK CPI drops in December

According to the UK Office for National Statistics, the Consumer Price Index (CPI) rose by 2.5% year-on-year (y/y) in December 2024. This is down from 2.6% y/y in November and below its recent peak of 11.1% in October 2022. On a monthly basis, CPI rose by 0.3% in December 2024, down from 0.4% in December 2023.

CPI including owner occupiers’ housing costs (CPIH) rose by 3.5% y/y December 2024, unchanged from November and down from a peak of 9.6% in October 2022. On a monthly basis, CPIH rose by 0.3% in December 2024, down from 0.4% in December 2023. The owner occupiers’ housing costs (OOH) component of CPIH rose by 8.0% in the 12 months to December 2024 from 7.8% in the 12 months to November.

For your interest:

1. BoJ raises rates to the highest level

• The Bank of Japan (BoJ) raised its short-term policy rate from 0.25% to 0.5%, a level Japan has not seen in 17 years. The widely-expected move underscores the central bank’s resolve to steadily push up interest rates to around 1%, a level neither cooling nor overheating Japan’s economy.
• The bank did not change its guidance on future policy, saying that it will continue to raise interest rates if economic and price forecasts are realised. However, it removed a phrase stressing the need to scrutinise risks surrounding overseas economies and markets.

(Source: CNN, January 2025)

2. Eurozone’s depressed industry records a small rebound

• The Eurozone industrial output rose by 0.2% over the month after a similar rise in October, mostly on higher energy and consumer durable goods production. But compared to a year earlier, output was down 1.9% and it remained well below the bloc’s pre-pandemic level.
• The industry has been in a deep recession as surging energy costs, weak demand from Asia, cheaper competition and the German car sector’s inability to adjust to shifting consumption patterns all weighed on sales. While monthly production numbers are often choppy, slow order figures, especially from Germany, the bloc’s largest economy, suggest that no meaningful recovery is in sight, even if the sector may be bottoming out.

(Source: Reuters, January 2025)

3. US retail sales improve in December 2024

• Advance estimates of US retail and food services sales for December 2024, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were US$729.2 billion, an increase of 0.4% from the previous month, and up 3.9% from December 2023.
• Retail trade sales rose by 0.6% from November 2024, and by 4.2% from the beginning of last year.

(Source: US Census Bureau, January 2025)

4. ECB lowers interest rates

• The European Central Bank (ECB) decided to lower the three key interest rates by 25 basis points. The interest rates on the deposit facility, the main refinancing operations and the marginal lending facility were decreased to 2.75%, 2.90% and 3.15% respectively, effective from 5 February 2025.
• The Governing Council is determined to ensure that inflation stabilises sustainably at its 2% medium-term target. It will follow a data-dependent and meeting-by-meeting approach to determine the appropriate monetary policy stance.

(Source: ECB, January 2025)

5. SA retail sales growth beats expectations

• South Africa’s retail sales advanced by 7.7% y/y in November 2024, following a downwardly revised 6.2% rise in the prior month and surpassing market forecasts of a 5.5% increase. This marked the ninth consecutive month of growth in retail activity and the strongest month since July 2022, mainly driven by sales in general dealers; retailers in textiles; clothing; footwear and leather goods; retailers in household furniture; and appliances and equipment.
• On a seasonally adjusted monthly basis, retail trade rose by 0.8% in November after a 1.6% increase in the previous month. Retail trade sales increased by 5.1% in the three months ended November 2024 compared to the same period a year ago.

(Source: Trading Economics, January 2025)SA President signs controversial Expropriation Bill

• President Cyril Ramaphosa has signed into law the Expropriation Bill which repeals the pre-democratic Expropriation Act of 1975. It sets out how organs of state may expropriate land in the public interest for various reasons. The Act, which has undergone a five-year process of public consultation and parliamentary deliberation, aligns legislation on expropriation with the Constitution.
• The Act outlines how expropriation can be done and on what basis. Local, provincial and national authorities will use this legislation to expropriate land in the public interest to promote inclusivity and access to natural resources.

(Source: South African Government, January 2025)

South African inflation drops, SARB cuts rates

South Africa’s annual headline CPI rate ticked up slightly in December 2024 to 3.0% y/y from 2.9% in November. Despite the increase, CPI was still below economists’ expectations of around 3.2%. The average annual CPI for the country for 2024 was 4.4%. Core inflation eased to 3.6% y/y in December 2024, which was also aligned with the lower end of the Bloomberg consensus. After the CPI report, the South African Reserve Bank (SARB) cut its repo rate by 25 basis points for the third consecutive Monetary Policy Committee (MPC) meeting, bringing the benchmark rate to 7.5% and prime rate to 11%. The last time South Africa’s repo rate was below 7.75% was in the first few months of 2023. SARB Governor Lesetja Kganyago announced the widely-anticipated move after the MPC’s first meeting for 2025. He adopted a cautious stance on more cuts for the rest of the year amid an uncertain global environment.

Market overview

Global market

Developed market equities bounced back from their December wobble with a strong start to the year, with the MSCI World Index ending the month positively at 3.53% in dollar terms. Emerging market equities underperformed relative to developed market equites, but the MSCI EM Index was still in positive territory at 1.81% month-on-month (m/m) in dollars. Global property fared better than global bonds at 1.78% m/m versus 0.57% m/m. The FTSE Index was the biggest gainer for the month in the global market, ending at 5.52% in pounds. After two years of equity markets led by US mega-cap tech shares, the shape of January returns was different, with the EuroStoxx 50 Index (8.14% m/m) outperforming its US counterpart, the S&P 500 (2.78% m/m). The underperformance of the US tech stocks – a previous contributor to the S&P 500’s gains – was partly due to the announcement of the development of an AI model, DeepSeek, to replicate the performance of OpenAI. The Dow Jones Index ended the month in positive territory at 4.78% in dollars, but the Nikkei ended in negative territory at -0.80% in yen terms.

Local market

South African equity markets bounced back from a three-month losing streak in January with the FTSE/JSE All Share Index at 2.32%. The resurgence of the South African rand hints at shifting market sentiments after a turbulent end to 2024. Industrials, Property and Financials were in negative territory at -2.60 m/m, -2.34% m/m and -2.87% m/m respectively. Resources and Cash gained 16.29% m/m and 0.66% m/m respectively, with Resources posting the biggest gains for the month. The FTSE/JSE All Bond Index was also positive at 0.44% m/m. Short- and long-term bonds posted gains for the month although the gains were low. Bonds of 1-3 years gained 0.77% m/m; bonds of 3-7 years gained 0.76% m/m; bonds of 7-12 years gained 0.49% m/m; and bonds of 12 years and above gained 0.08% m/m. The rand showed strength for January, ending the month at 1.07% against the US dollar; 0.68% against the euro; and 1.87% against the pound.