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November 2023 Economic Review

| Market Forces

November Economic Review

The International Monetary Fund (IMF) forecasts China’s economy will grow by 5.4% for 2023, from a previous growth forecast of 5%. Consumer price pressures in the euro zone are expected to ease on the back of declining energy prices, after two years of skyrocketing inflation. The US Federal Reserve (Fed) kept its key short-term interest rate unchanged at its November meeting, but highlighted that it was willing to raise interest rates if inflationary pressure persisted in coming months.

The South African National Treasury announced its Medium-Term Budget Policy Statement (MTBPS) in November, which included a provision of R33.6 billion to extend the R350 monthly social stipend until March 2025. The Monetary Policy Committee (MPC) reached a unanimous decision to pause interest rates in November, maintaining the repurchase rate at 8.25%. Unemployment declined marginally to 31.9% from its peak of 35.3%, but remains higher than pre-pandemic levels.

IMF upgrades China’s economic forecasts

The IMF forecasts China’s economy will grow by 5.4% for 2023, from a previous growth forecast of 5%. This upward revision follows a strong domestic recovery after Covid restrictions were lifted in November 2022, which had contributed significantly to weak economic growth. The IMF’s First Deputy Managing Director Gita Gopinath said growth was revised up by 0.4% because China delivered stronger-than-expected economic growth in Q3 2023, and announced new policy support in October. This was a rare mid-year revision, which included a 1 trillion-yuan ($137 billion) issuance of government debt for the reconstruction of areas hit hard by natural disasters such as this summer’s historic floods, and for catastrophe prevention. However, the IMF projects China’s growth will slow to about 3.5% by 2028 because of weak productivity and an ageing population.

In its October World Economic Outlook, the IMF forecast China’s 2024 gross domestic product (GDP) growth at 4.2%, but Gopinath said continued declines in the property sector and low external demand for goods could restrict GDP growth to 4.6% in 2024. China has put measures in place to support the property market, but more is needed to secure a quicker recovery and lower economic costs to a more sustainable size. The IMF said that the 1 trillion yuan policy package would require accelerating the exit of non-viable property developers, removing impediments to housing price adjustment, and increasing central government funding for housing completion, among other measures.

Economists say the combination of a decline in the property sector and an increase in local government debt could restrain China’s long-term growth potential. Chinese debt has been a concern for many years: in 2022 it reached 92 trillion yuan (US$12.6 trillion), which is equivalent to 76% of China’s economic output. This is up from 62.2% in 2019. The chart below shows that China’s consumer price index dropped 0.2% year-on-year (y/y) in October 2023 and was 0.1% lower than the month before. The producer price index dropped by 2.6% y/y in October, 0.1% less than economists had predicted. This is largely attributed to deflationary factory pressures and sluggish domestic demand.

Deflationary pressures persist in China’s economy

Graviton Perspectives November 2023

Source: World Economic Forum, Reuters, November 2023


Euro zone growth outlook

The euro zone’s economic outlook for next year and beyond has its fair share of positives and negatives. Consumer price pressures are expected to decrease on the back of declining energy prices, after two years of skyrocketing inflation. The euro zone has struggled with low productivity, an ageing population as well as labour supply constraints, leading to a slowing economy. The outlook for 2024 seems to be for a gradual recovery. If prices start to decline and wages increase, European consumers will have more purchasing power, which will lift domestic demand. Inflation in the euro zone is continuing its downward trend. It declined to 2.4% y/y in November 2023, reaching its lowest level since July 2021 and falling below the market consensus forecast of 2.7%. In October 2023, inflation was 2.9% y/y compared with a high of 10.6%y/y in 2022.

Euro zone inflation rate

Source: Trading Economics, November 2023

European Central Bank (ECB) Vice President Luis de Guindos highlighted the risks to the current growth outlook, with expectations of the economy performing worse than expected. Headline inflation in the euro zone is projected to fall from 5.6% in 2023 to 3.2% in 2024 and 2.2% in 2025. Headline inflation in the European Union (EU) is projected to fall from 6.5% in 2023 to 3.5% in 2024 and 2.4% in 2025. The ECB kept its benchmark rate unchanged in November. In October, inflation in the 20 countries that use the euro fell to 2.9%, its lowest level in more than two years.

The European Commission’s Autumn Forecast projects GDP growth in the euro zone and EU will decline by 0.6% in 2023. GDP in the euro zone is projected to decline to 1.2% but increase to 1.3% in the EU in 2024. In 2025, GDP is expected to increase to 1.6% in the euro zone and increase to 1.7% in the EU. Investment is projected to increase further with support from solid corporate balance sheets and the Recovery and Resilience Facility. Economic activity is expected to accelerate in 2024 as consumption recovers on the back of a strengthening labour market, wage growth and an easing of inflation.

US interest rates paused

The US Fed kept the key short-term interest rate unchanged at its November meeting but highlighted that it was willing to raise interest rates if inflationary pressure persists in the coming months. During the meeting, the Federal Open Market Committee (FOMC) acknowledged the likelihood that stricter financial conditions would have an impact on economic activity, employment and inflation. To support the objective of reaching a 2% inflation target, in November members unanimously voted to maintain the federal funds rate at its high of 5.25-5.5% for the second consecutive meeting. Fed Chair Jerome Powell and other central bank officials have responded to the US economic resilience, which is driven by consumer spending and a strong job market, and they will continue to monitor data to determine whether inflation will subside or remain chronically above the target level of 2%.

Long-term treasury yields have soared since July, swelling the costs of auto loans, credit card borrowing and many forms of business loans. In discussions about the future path of the policy rate, Fed officials highlighted the importance of assessing the cumulative impact of prior interest rate hikes. They acknowledged the time lags associated with the monetary policy’s influence on the economy and inflation, and are monitoring economic and financial market developments. Other major central banks have adopted the same approach as their inflation rates show signs of cooling.

Fed extends pause for second meeting

Source: Bloomberg, November 2023

A summary of SA’s Medium-Term Budget Policy Statement

National Treasury announced its MTBPS in November. It revealed a provision of R33.6 billion dedicated to extending the R350 monthly social stipend until March 2025. However, with tax revenues falling short by R56.8 billion and a budget deficit amounting to 4.9% of GDP, the outlook for the economy appears gloomy. The government is faced with challenges such as high interest rates on debt, deteriorating creditworthiness, and downgrades by credit rating agencies. There is a need for increased tax revenue, spending discipline, and reforms for faster economic growth. The government emphasised its ability to control spending, calling for a restructuring of government departments.

The global economic climate and rising borrowing costs add to the urgency of putting SA’s fiscal house in order. Sharply lower tax revenue, higher employee compensation and the ongoing financing needs of state-owned enterprises are expected to keep SA’s long-term cost of borrowing elevated. Spending by firms, households, public corporations, and the general government remains positive in real terms, on an annual basis. Disposable income of households is expected to grow, though slowly. The investment forecast for the year was revised up to 7.7% in September. The growth in credit extended to households and corporates has slowed in recent months but remains positive.

South African interest rates remain paused

The Monetary Policy Committee (MPC) reached a unanimous decision to pause interest rates in November, maintaining the repurchase rate at 8.25% per annum. The SARB considers that this rate aligns with the inflation forecast and persistently high inflation expectations. The primary objective of the SARB’s monetary policy continues to be keeping inflation within a target range of 3-6%. Challenges persist in the South African economy, stemming from energy shortages and logistical limitations. The headline inflation rate rose for the third straight month, ending October at 5.9%, which takes it to the highest in five months and the upper end of the 3-6% target range. The annual core inflation rate (excluding prices of food, fuel, energy, non-alcoholic beverages) eased to 4.4% in October from 4.5% in September.

South African headline inflation rate

Source: Trading Economics, StatsSA, 2023


The sudden increase in load shedding is a reminder that uncertainty about energy availability remains a constraint on economic activity and business sentiment. The Minister in the Presidency responsible for Electricity, Kgosientsho Ramokgopa, said that the intensification of power cuts was necessary after Eskom had run through its emergency reserves.

SA’s unemployment rate declines

Unemployment in South Africa has seen a slight decline from its peak of 35.3%, yet it remains higher than pre-pandemic levels. Remarkably, the country’s employment figures have surpassed pre-Covid levels, with the official jobless rate dropping more than anticipated to 31.9% from the previous quarter’s 32.6%. The latest South African government data indicates a total of 16.7 million people are now employed, exceeding the pre-pandemic figure of 16.4 million. This positive shift was driven by the finance and community service sectors, which contributed significantly to job creation. In the finance sector, there was a rise of 237 000 jobs, while the community services sector added 119 000 jobs. The construction sector experienced substantial employment growth of 53 000 jobs, possibly due to increased investment in renewable energy initiatives.


Market overview

Global overview

Global equity markets rallied hard in November. The MSCI World ended in positive territory at 9.38% month-on-month (m/m) in dollar terms, reversing losses compounded over the three prior months. The “higher-for-longer” interest rate narrative from global central banks was the key driver of markets in the months leading up to November, but there are hopes of rate cuts in Q2 2024. Emerging markets (EM) were held back by Chinese equites but ended the month with the MSCI EM Index at a positive 8.02% in dollar terms. Global Bonds were at 5.4% m/m in dollars and Global Property was at 10.68% m/m in dollars. The Dow Jones Index was also positive at 9.15% m/m in dollars and the FTSE 100 Index at a positive 2.99% in pound terms. The S&P 500 ended the month at 9.13% in dollars, up from the previous month’s figure of -2.1% in dollars.

Local overview

The South African stock market benefited from a substantial shift in investor sentiment in November. The FTSE/JSE All Share Index ended the month at 8.55%, recouping most of the losses incurred in the three months leading up to November. The Industrials sector was an outperformer for the month at 10.47%, followed by Property at 9.14% and Financials at 8.72%. Resources also ended the month in positive territory at 5.86%, and Cash was the lowest, but at a positive 0.68%. In credit markets, the FTSE/JSE All Bond Index ended the month at 4.73%, with 1-3 year bonds at 1.89%, 3-7 year bonds at 2.99%, 7-12 year bonds at 5.17% and bonds of above 12 years at 5.9%. The rand underperformed against the market and ended the month down -1.07% against the US dollar, -4.16% against the euro, -5.17% against the pound, -0.27% against the Japanese yen and -0.004% against the Australian dollar.

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