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April 2022 economic update

The IMF to cut the UK’s GDP growth forecast to 3.7% for 2022 down from January’s forecast of 4.7%
  • April proved to be a devastating month for global equities as a myriad of factors dragged down the major indexes. Expectations of a 50-basis-point hike by the Federal Reserve are lifting yields to new highs; whilst the war in Ukraine and the Covid-19 outbreak in China are threatening to further exacerbate supply chain issues and boost prices. As a result, the Morgan Stanley Capital International (MSCI) All Country World Index lost 8.1% in April. Developed markets were the biggest drag with the MSCI World Index losing 8.4% as compared with -5.8% for the MSCI Emerging Markets Index.
  • The US manufacturing sector remains in a supply-constrained, high demand environment which caused the Institute of Supply Management’s Manufacturing Purchasing Managers Index (ISM Manufacturing PMI) to fall for the second month to 55.4, missing forecasts of 57.6.
  • The US added 431 000 payrolls in March, below expectations of 490 000, but still indicating tightening conditions in the labour market. The unemployment rate for March also dropped for the second consecutive month to 3.6%, down from 3.8% in February.
  • Inflation is showing no signs of easing after accelerating to 8.5% year-on-year (y/y) in March. The biggest culprit continues to be energy which increased 32% for the month. Elevated inflation coupled with the tightening labour market has opened the door for a 50-basis point hike by the Federal Reserve at their meeting in May.
  • China’s stringent lockdowns amid a surge in Covid-19 infections are slowing down the economy and further hampering global supply chains. This has led both manufacturing (Caixin Manufacturing PMI) and services (Caixin Services PMI) activity to drop to 48.1 and 42.0 respectively – the lowest levels since the start of the pandemic.
  • The UK is also showing signs of a slowdown due to depressed household spending and investment brought about by higher prices and interest rates. This led the IMF to cut the UK’s GDP growth forecast to 3.7% for 2022 down from January’s forecast of 4.7%, whilst the 2023 growth rate was cut to 1.2% from 2.3%.
  • Given that households are facing a large tax hike as well as soaring prices, it comes as no surprise that the UK’S GfK Consumer Confidence indicator fell to -38 in April, its lowest level since the 2008 financial crisis. The collapse in consumer confidence indicates that the rise in the cost of living is beginning to weigh down on growth.
  • Inflation in the UK also advanced to 7% in March, the highest reading in just under 30 years. The largest contributor was the rise in transport costs due to increases in motor fuel and petrol prices. Consequently, it is largely expected for the Bank of England to raise rates for the fourth consecutive time at their meeting on Thursday.
  • Locally, manufacturing production went up a meagre 0.2% (y/y) in February, falling sharply from the 2.9% growth in January. The sharp fall in manufacturing activity is likely a result of the increased load shedding being experienced. Retail sales also fell by 0.9% in February after the spending spree in January saw a rise of 7.7%. This is a result of unemployment, rising interest rates and elevated inflation weighing down on consumer spending.
  • The local inflation rate jumped to 5.9% for March, up from 5.7% the month before but below market forecasts of 6.0%. This is the 11th consecutive month that the rate has been above the South African Reserve Bank’s 4.5% midpoint and has likely opened the door to another rate hike at their May meeting.
  • The rand has dropped to its weakest level in close to five months as expectations of a 50-basis-point hike by the Federal Reserve keep the greenback elevated. This coupled with our local issues caused the rand to lose 8.3% against the greenback in April and is currently trading around the R16.00 level. The rand also lost 3.6% and 3.1% against the pound and euro respectively.
  • South African equities followed their developed peers lower with the FSTE/JSE All Share Index ending April down 4.1%. The biggest drag on performance was financials with -7.8%, followed by resources and industrials with -5.4% and -2.0% respectively. South African listed property also ended the month down 2.6%.
  • One month index movements:
    • JSE All Share Index: -4.05%
    • S&P 500 (US): -8.80%
    • FTSE 100 (UK): 0.38%

Source: Investing.com and Trading Economics

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Michael Haldane

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