March 2024 Economic Review

The US economy continued to show strength in March, with job gains of 303 000 relative to a downwardly revised February figure. Although the Chinese property market is still lagging, China’s manufacturing activity expanded: the Caixin China General Manufacturing Purchasing Managers’ Index (PMI) rose to 51.1 in March 2024 from 50.9 in February. Preliminary GDP data suggested that Japan was in a technical recession, but revised GDP data released in March showed that a technical recession was avoided, with the country expanding by 0.4% year-on-year (y/y) in Q4 2023. South Africa’s GDP expanded by 0.1% in Q4 2023 after contracting by 0.2% in Q3 2024, enabling the economy to narrowly avoid a technical recession.

Strong US labour market boosts economic growth

The US labour market strengthened, with wages increasing steadily, putting the economy on solid ground at the end of Q1 2024. US economists previously forecast job gains of 200 000 for the month, but analysts said the resilience of the economy reflected in labour market data could potentially cause the Federal Reserve (US Fed) to defer interest rate cuts this year. According to the Labour Department’s Bureau of Labour Statistics (BLS), US non-farm payrolls added 303 000 jobs in March, compared with a downwardly revised 270 000 in February, with gains primarily in healthcare, government, and construction. The job gains in Q1 2024 averaged 276 000 per month compared with the Q4 2023 job gains average of 212 000.

Source: LSEG Datastream, April 2024

The BLS shows that the healthcare sector led the increase in employment, adding 72 000 jobs across ambulatory services, hospitals and nursing and residential care facilities. The US government added 71 000 jobs, boosted by local and federal government hiring. The construction sector added 39 000 jobs, almost double the average monthly gain of 19 000 over the last 12 months. The unemployment rate fell to 3.8% in March from 3.9% in February. This rate has stayed below 4% for a 26-month period, reflecting a sharp rebound in household employment, which more than absorbed the 469 000 people who joined the US labour force.

The stronger-than-expected labour data has raised uncertainty in financial markets about how soon the US Fed will start cutting rates and whether there will still be three rate cuts for the year. The Fed previously forecast three rate cuts of 25 bps in December 2023 which markets read as six cuts. After three months, investors were in sync with the Fed’s three rate cut view, although many economists expected two cuts or fewer.

China’s manufacturing activity expands in March

The Caixin China General Manufacturing PMI survey showed that in March, manufacturing activity expanded for the first time in six months. This gives policymakers some relief, although the property sector crisis remains a drag on the economy. According to China Everbright Bank, market indicators are showing an improvement in domestic supply and demand, while homeowner and business confidence is recovering, with a willingness to consume and invest in the country. China’s economy appears to be slowly recovering from the persistent economic sluggishness caused by Covid-19 restrictions in late 2022, a deepening housing crisis, mounting local government debt and weakening global demand.

According to a Reuters poll, the Caixin China General Manufacturing PMI increased to 51.1 in March 2024 from 50.9 in February 2024. This was the highest PMI reading since March 2023, when momentum from the lifting of Covid-19 restrictions began to stall. New export orders moved into positive territory, breaking an 11-month slump, but employment continued to shrink, although at a slower rate. The official non-manufacturing PMI, which includes the services and construction sectors, rose to 53 in March from 51.4 in February, marking the highest reading since September 2023.

Chinese Premier Li Qiang announced an ambitious 2024 economic growth target of around 5% at the annual meeting of the National People’s Congress (NPC) in March. However, analysts say policymakers will need to roll out more stimulus to achieve this target because they cannot count on the low statistical base of 2022, which flattered 2023 growth data.

Japan revises GDP data and avoids recession

Japan’s economy avoided a technical recession after revised economic data showed that GDP expanded by 0.4% y/y in Q4 2023. This follows preliminary GDP data shared in February which showed an estimated contraction of 0.4%, raising doubts about when the central bank would begin to exit its decade-long ultra-loose monetary policy. The revised GDP figure was below economists’ 1.1% growth forecast, highlighting concerns about the sluggish economic recovery. On a quarter-on-quarter (q/q) basis, GDP grew 0.1%, compared with the initial reading of a 0.1% drop and a median forecast for a 0.3% rise.

Source: Reuters, March 2024

High inflation has impacted domestic demand and private consumption, underscoring the vulnerability of growth in the country. Private consumption fell 0.3% q/q in Q4 2023, more than provisional estimates of a 0.2% decline. Capital expenditure rose by 2% q/q, better than the preliminary 0.1% decrease, but still below market expectations for a 2.5% increase. Private consumption, which makes up about 60% of Japan’s economy, fell 0.3% in Q4 2023, slightly below the 0.2% decrease in the initial estimate. External demand contributed 0.2% to real GDP, unchanged from the preliminary reading.

For your interest

1. US interest rate pause:

• The Fed maintained the federal funds rate in a range of 5.25% to 5.5%. This is the fifth consecutive meeting in which policymakers kept rates unchanged. Fed Chair Jerome Powell pointed to stubbornly persistent inflation in January and February’s prints to explain the decision to hold rates steady, adding that the central bank does not want to cut prematurely and risk a flare-up of inflation.
• The Fed did not shift away from its projection of three rate cuts in 2024 but has highlighted the possibility of fewer rate cuts. Powell emphasised that the committee will continue its data-dependent approach and evaluate data and rate hike decisions on a “meeting by meeting” basis.

(J.P. Morgan, March 2024)

2. UK interest rate pause:

• Bank of England (BoE) policymakers kept interest rates on hold at 5.25% for a fifth consecutive time but signalled at least three interest rates cuts this year after seeing encouraging signs of a falling inflation.
• Financial markets expect three cuts of 25 bps each this year, with the first in June. The BoE said its survey of financial companies found that they expected rates to fall to 4.5% before the end of 2024.

(The Guardian, March 2024)

3. Japan’s interest rate hike:

• The Bank of Japan (BOJ) ended eight years of negative interest rates and other remnants of its unorthodox policy, marking a historic shift away from its focus on reflating growth with decades of massive monetary stimulus. This raises its short-term interest rates to a range of 0% to 0.1% from -0.1% at the end of its March policy meeting. Analysts say while the move was Japan’s first interest rate hike in eight years, it still keeps rates stuck around zero as a fragile economic recovery forces the central bank to go slow on further rises in borrowing costs.
• The shift makes Japan the last central bank to exit negative rates and ends an era in which policymakers around the world sought to prop up growth through cheap money and unconventional monetary tools. BOJ Governor Kazuo Ueda said: “We reverted to a normal monetary policy targeting short-term interest rates, as with other central banks”.

(Source: Reuters, March 2024)

4. Switzerland’s interest rate cuts:

• The Swiss National Bank (SNB) cut its main interest rate by 25 bps to 1.5% in March, a surprise move which made it the first major central bank to dial back tighter monetary policy aimed at tackling inflation. The step follows a drop in Swiss inflation to 1.2% in February, the ninth month in succession that price rises have been within the SNB’s 0-2% target range.
• The SNB said it was taking into account reduced inflationary pressure as well as the appreciation of the Swiss franc in real terms over the past year. The cut would support economic activity, it added. Before the decision, Swiss industry had urged the central bank to broaden its focus from fighting inflation to helping companies to deal with the strong franc, which was eating into profits.

(Source: Reuters, March 2024)

5. South African trade surplus:

• South Africa recorded a preliminary trade surplus of R14 billion in February 2024. This surplus is attributable to exports of R161.8 billion and imports of R147.8 billion.

(Source: South African Revenue Services, March 2024)

South Africa avoids a recession

Statistics SA reported in March that domestic GDP expanded by 0.1% q/q in Q4 2023 (seasonally adjusted), after contracting by 0.2% in Q3 2024, allowing the economy to narrowly avoid technical recession. This figure is slightly lower than the forecast of a 0.3% growth by economists polled by Reuters. The South African economy expanded by 0.6% in 2023, led by higher economic activity in the transport, mining, finance, real estate and business sectors. This figure is in line with National Treasury’s GDP growth estimate in 2023, which was revised downwards because of excessive power cuts, operational and maintenance failures in freight rail and at ports, as well as high living costs due to elevated interest rates and inflation. Six of 10 industries recorded positive growth in the last three months of 2023.

The transport, storage and communication industry grew by 2.9% in Q4 2023 as increased economic activity was reported for land and air transport, as well as for transport support services and communications. The mining and quarrying industry expanded by 2.4% because of greater activity in platinum group metals, coal, chromium ore and diamonds. The trade, catering and accommodation industries were the main negative contributors in Q4 2023, decreasing by 2.9%. The electricity, gas and water industry grew by 2.3% in Q4 2023, largely because of an uptick in electricity production and consumption.

Market overview

Global market

Positive global equity momentum carried into March, which was the fifth consecutive positive month for global stocks. The MSCI World Index ended the month up 3.21% in dollar terms. Emerging market (EM) stocks lagged their developed market (DM) peers in March but ended in positive territory, with the MSCI EM Index up 2.49% month-on-month (m/m) in dollar terms. The semiconductor sector largely contributed to the monthly performance. Mega-cap US tech stocks performed in March and Nvidia continued to attract investors, boosting the S&P 500 Index to end the month 3.22% higher, m/m. Alphabet rallied in March as it announced plans to roll out its AI technology across various parts of the health care sector, including plans to improve screening for cancer and other diseases. Global bonds and global property ended the month positively at 0.55% and 3.61% respectively, both in dollars. The Dow Jones Index was positive at 2.21% m/m in dollars and the FTSE gained 4.75% m/m in pounds. The Euro Stoxx Index gained 4.38% m/m.

Local market

South Africa was the best-performing of its major EM peers in March, clawing its way back towards positive territory. The FTSE/JSE All-Share Index gained 3.23% in rand terms. Industrials, Property and Financials were in negative territory at -0.6% m/m, -1.02% m/m and -3.36% m/m respectively.  Resources gained 12.8% m/m and cash gained 0.7% m/m. The bond market underperformed, with the FTSE/JSE All-Bond Index ending at -1.93% m/m in rands. Bonds of 1-3 years were positive, ending the month at 0.07%, with bonds of 3-7 years at -1.37% m/m, bonds of 7-12 years at -2.28% m/m and bonds of above 12 years ending at -2.85% m/m. The rand was one of the stronger EM currencies, gaining 1.31% m/m against the US dollar, 1.51% m/m against the euro, 1.44% m/m against the pound, 0.19% against the Japanese yen and 0.002% m/m against the Australian dollar.