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No more interest rate increases in 2023


The current global cycle of rising interest rates grinded to a halt and may very well have ended. However, the war between Israel and Palestine-ruled Hamas, has the potential to change this. Should the war expand to include oil producers, oil prices may increase significantly, contributing to higher CPI and further interest rate increases, including in South Africa.


On a geopolitical front, ironically, or maybe not, Hamas’ invasion of Israel on 7 October occurred as the United States (US) was advancing a normalization agreement between Israel and Saudi Arabia. Such a deal would have contributed to increasing Middle East peace/tolerance efforts, and also diminished China’s initiatives to grow its influence in the Middle East via its relationship with Iran. However, the war is an impediment to such deal and may divide countries even further, causing more economic fragmentation.

In the meantime, and despite the intensity of the Israel-Palestine and Russia-Ukraine wars, the US Federal Reserve is set for a long-term “interest rate pause”. A stage has been reached where relatively slow decreases in CPI, and even the odd increase or so, may occur. In this respect, Q3 2023 economic growth was strong at 4.9% and CPI for September was unchanged at 3.7%. However, core CPI was up 4.1% in September, slower than the 4.3% in August, while the previous report explained why Q4 2023 economic growth will be drastically lower, which should contribute to lower CPI in 2024.

In Europe, the European Central Bank (ECB) also kept interest rates on hold. ECB President Christine Lagarde admitted risks to economic growth were to the downside, amid a possibly stronger-than-expected impact of previous rate increases on gross domestic product, as well as heightened geopolitical risks stemming from the Israel-Palestine war. Weaker growth prospects are confirmed by PMI data – Services PMI declined to 47.8 points from 48.7, while Manufacturing PMI was at 43.0 points from 43.4. Likewise, PMIs in the UK remained stagnant, also pointing to low economic growth. These weak PMI readings are in contrast to the US where PMIs continued to rise, albeit marginally. Consequently, the US$ gained against the Euro and Pound. However, UK CPI for September remained sticky with headline CPI increasing 6.7% from 6.6% and core CPI 6.1% from 6.2%. However, the case may be similar as in the US and the Bank of England may also adopt a wait-and-see approach on interest rates.

In Asia, the initial lift in risk sentiment from better-than-expected economic growth of 4.9% in China faded as more strains on the troubled property sector continued, while the government seems unwilling to provide the economic stimulus analysts are calling for. In Japan, the authorities finally acted on Yield Curve Control, lifting the rate to 1%. However, it was lower than expected and is still seen as artificially keeping monetary policy easy and not acting firmly to limit CPI. As such, the US$ strengthened against the yen.

In South Africa, the electricity outlook improved significantly as loadshedding (in work hours) declined in October to 1 272 MW from 2 932 MW in September, which should boost Q4 economic growth. CPI increased in September due to a large increase in fuel prices (R1.71/l and R1.08/l in October), but a significant decrease (R1.78/l) will occur in November. The Medium-term budget was better than expected, showing a consolidated budget deficit of 4.9% of GDP in 2023/24, 4.6% in 2024/25 and 4.2% in 2025/26 – wider than in February, but tighter than consensus of 5.5%. A revenue shortfall – caused by corporate tax slippage – of R44 billion in 2023/24, and a cumulative R151 billion in 2024/25/26 – is estimated by national treasury. Bracket creeping is expected next year – to lift revenue by R15 billion in 2024/25. Expenditure is projected to overshoot by R19 billion this year and by R12 billion over the next two years. Gross debt to GDP is seen rising to 77.7% in 2025/26 before easing to 77.5% in 2026/27.


Multivest Economic Division

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