October 2024 Economic Review

With a falling inflation rate, the US seems close to achieving its 2% inflation target. Although consumer prices increased slightly in September compared with August, the figure isn’t far from the target. The UK economy is still showing resilience through its economic expansion despite remaining static during June and July. China and the eurozone economy are both growing despite not expanding to the desired figure. The rate cutting cycle continues in the eurozone as interest rates were cut for the third time by the European Central Bank (ECB) at its October meeting. Locally, inflation dipped to below the midpoint of the South African Reserve Bank’s inflation target, encouraging the bank to cut rates after a US rate cut.

US inflation drops to the lowest level in three years

Inflation in the US dropped to its lowest point in September since it began its first surge more than three years ago, adding to a series of encouraging economic news in the closing weeks of the presidential race. Consumer prices rose just 2.4% in September from a year earlier, down from 2.5% in August. This was the smallest annual rise since February 2021. Measured from month to month, the US Labour Department reported that prices increased 0.2% from August to September, the same as in the previous month.

Source: US Bureau of Labour Statistics

However, core inflation (excluding volatile food and energy costs) was up 3.3% in September from a year earlier and 0.3% from August. It was driven by rising costs for medical care, clothing, auto insurance and airline fares. Holistically, the September figures show that inflation is steadily easing back to the US Fed’s 2% target, although in an uneven pattern. That decline suggests that the Fed will likely keep cutting its benchmark interest rate this year, with two quarter-point reductions in November and December expected by most economists.

The improving US inflation picture follows a mostly healthy jobs report showing that hiring accelerated in September and that the unemployment rate dropped from 4.2% in August to 4.1%. The US government also reported that the economy expanded at a solid 3% annual rate in the April-June quarter.

UK economy shows growth in August

The UK economy returned to growth in August following two consecutive months of stagnation, providing a slight boost as the Labour government prepared to deliver its first budget. Flash figures published by the Office for National Statistics showed that the economy grew 0.2% on a month-on-month (m/m) basis, meeting expectations of economists polled by Reuters.

This follows an economic flatlining in June and July after the UK recorded modest but steady expansion in almost every month this year. The country emerged from a shallow recession at the start of 2024. Over the three months to August, the UK’s economic growth expanded 0.2%, compared with the 0.5% recorded in the three months to July. The services sector showed slight growth of 0.1% in the month to August, while production and construction output rose by 0.5% and 0.4%, respectively. UK Finance Minister Rachel Reeves highlighted that it is the government’s number one priority to return the economy to growth levels.

China reports third quarter GDP growth

China’s National Bureau of Statistics reported third-quarter GDP growth of 4.6% year-on-year (y/y), slightly beating economists’ expectations of 4.5% in a Reuters poll. This is less than the second-quarter growth of 4.7% y/y. On a quarterly basis, the third quarter saw a 0.9% expansion, compared with 0.7% in the second quarter. Retail sales and industrial production data also beat expectations, a hopeful sign for the world’s second-largest economy. China still hopes to achieve its annual growth target of around 5%.

In October Chinese officials announced a list of support measures to jumpstart its sluggish economy after disappointing economic data. This includes cutting the amount of cash banks need to have on hand by 50 basis points. Chinese authorities continued to drip-feed more stimulus measures throughout the month amid low consumer sentiment and a flagging property sector. China’s Minister of Finance, Lan Fo’an, told reporters that the central government has room to increase debt and the deficit, without giving any details on the size of the package.

For your interest:

1. Eurozone’s third quarter GDP growth

• Flash figures published by the Eurostat showed that the eurozone economy grew 0.4% in the third quarter. Economists polled by Reuters had forecasted growth of 0.2%.
• Of all the countries in the eurozone, Spain saw one of the highest growth rates, increasing 0.8% in the third quarter while Ireland grew 2% in the third quarter.

(Source: Reuters, October 2024)

2. ECB lowers interest rates

• The ECB cut rates for the third time this year at its October meeting, after headline inflation came in at 1.7% in September.
• The ECB cited persistent signs of weak activity in the euro area as a key factor in the central bank’s decision to enact an October cut.

(Source: CNBC, October 2024)

3. Japan’s jobless rate edges down

• Japan’s unemployment rate fell to 2.4% y/y in September 2024, down from 2.5% y/y in August. This marks the second consecutive month of improvement, attributed to fewer workers being dismissed as the economy recovers.
• The total number of employed people declined slightly to 67.82 million, while the number of unemployed dropped to 1.68 million. The job availability ratio also edged up to 1.24, indicating more job opportunities compared to job seekers.

(Source: Kyodo News, October 2024)

4. German economy surprised in the third quarter

• Germany’s economy experienced a slight growth of 0.2% in the third quarter of 2024, narrowly avoiding a recession. This growth comes after a contraction of 0.1% in the second quarter.
• The increase was driven by higher government and household consumption expenditures. However, the economy remains sluggish due to declining industrial orders, higher energy prices, and increased costs of raw materials. Despite the growth, inflation rose slightly to 2% in October 2024.

(Source: DW, October 2024)

5. South African Government budget

• South Africa’s government, in its first budget review under the new coalition GNU, stated that the deficit is expected to widen to 5% of the GDP in 2024/25, up from February’s estimate of 4.5%, citing lower revenue collection. This compares with analysts’ expectations of a shortfall of 4.4%. For the next fiscal year, National Treasury now sees a budget deficit of 4.3% of the GDP, also above the previous estimate of 3.7%.
• Gross debt to GDP is expected to stabilise at 75.5% of GDP in 2025/26 compared with 75.3% of GDP in the same year, seen in February. The economy is projected to grow by 1.1% this year, down from February’s estimate of 1.3%. Growth is expected to accelerate to 1.7% in 2025, slightly exceeding the previous forecast of 1.6%, amid improved power supply.

(Source: SA National Treasury, October 2024)

South Africa’s inflation dips below 4%

In September 2024, South Africa’s inflation rate dipped to 3.8%, marking the first time it has fallen below 4% in over three years. This significant drop is attributed to a good food harvest and lower fuel prices. The decline in inflation raises the likelihood that the South African Reserve Bank (SARB) might cut interest rates in their upcoming Monetary Policy Committee meeting. Lower inflation generally means more purchasing power for consumers, which could positively impact the overall local economy.

Analysts expect the central bank to cut rates by an additional 25 basis points at its next meeting on 21 November, following a similar move in September. Economists forecast inflation to remain below the SARB’s midpoint target in the coming quarters, supporting further rate reductions in 2025.

Macro overview

Global overview

Developed market equities experienced their second negative month of the year with the MSCI World Index ending the month at -1.98% in dollars, largely attributed to weakness across most regions and sectors. US corporates started reporting third quarter earnings, with about half of S&P 500 companies reporting earnings during October. Emerging market equities also struggled and ended negatively with the MSCI EM Index at -4.32% m/m in dollars. Global bonds and global property also finished in negative territory at -3.35% m/m and -5.02% m/m respectively in dollars. The FTSE Index was negative at -1.64% m/m in pounds, along with the S&P 500 which ended negatively at -0.92% m/m in dollars. The Dow Jones Index also ended negatively at -1.26% m/m in dollars and the Euro Stoxx 50 ended negative at -3.32% m/m in euros. However, the Nikkei was in positive territory at 3.06% in yen terms.

Local overview

After seven consecutive positive months, South African equities retracted in October with the FTSE/JSE Capped All Share Index ending the month negatively at -0.92%, tracking global markets lower. Even the rand-hedge component of the SA bourse (companies with predominantly foreign earnings) could not take advantage of the tailwind a weak local currency provided to deliver decent rand share price performance in October. Resources and Cash were both in positive territory for the month, ending at 2.98% and 0.68% respectively. However, Industrials was negative for the month at -5.90%, along with Property and Financials both ending the month negatively at -2.84% and -0.38% respectively. The bond market was negative for the month, as the FTSE/JSE All Bond Index ended at -2.20% m/m. Bonds of 1-3 years were also in negative territory at -0.06% m/m, along with bonds of 3-7 years at -1.21% m/m, bonds of 7-12 years at -2.13% m/m, and bonds of 12 years and above at -3.42% m/m. The rand weakened against the US dollar by -2.53% m/m, but strengthened against the euro by 0.20% m/m. The rand also strengthened against the pound by 1.69% m/m.