February 2022 economic update

Inflation increased in the US and UK, while in SA it slowed, though the figure remains near the top of the Sarb’s 3-6% target.
  • Global stock markets continued heading down in February after a poor start to the year in January. The thought of tightening monetary policy combined with Russia invading Ukraine has caused investors to flee to safer assets. As a result, the Morgan Stanley Capital International (MSCI) All Country World Index lost 2.70% in February. As expected, the current environment hurt emerging markets more than their developed counterparts, with the MSCI Emerging Markets Index losing 3.06% as compared with -2.65% from the MSCI World Index.
  • The major headline is the Russian invasion of Ukraine, which many have declared the largest warfare operation in Europe since World War II. The United States and its allies have imposed numerous sanctions on Russia, including the major Russian banks, to try to cripple its economy. Most strategists are, however, keeping a close eye on how much Russian oil could be kept off the market as this will undoubtedly drive the oil price higher and echo across all other markets.
  • Data from the US gave mixed signals in February. The Institute of Supply Management’s Manufacturing Purchasing Managers Index (ISM Manufacturing PMI) fell to 57.6 in January as compared with 58.7 the month before. This marks the weakest growth since September 2020 and can be attributed to the continuing constraints on supply as well as labour shortages.
  • Inflation also continues its relentless rise as the US consumer price index (CPI) advanced 7.5% year-on-year (y/y) in January, the highest reading in around 40 years. The biggest contributor continues to be energy prices with the Russia-Ukraine conflict likely to add fuel to the fire. Despite the rise in inflation and surging Covid cases, retail sales still jumped 3.8% month-on-month (m/m) in January pointing to a rebound in consumer activity.
  • Fed Chair Jerome Powell has also reiterated that they are not afraid to raise rates faster than initially planned if needed to put an end to the ever-rising prices. As such, a 25-basis point hike at their March meeting is fully priced into the market as well as a 64% chance of another five hikes before year-end (data from Chicago Mercantile Exchange Group).
  • Growth in China continues to be revised downward as the indebted property market, government crackdowns and a zero-Covid strategy for lockdowns all add to concerns over the world’s second-largest economy. This caused The International Monetary Fund to revise down Chinese growth to 4.8% from 5.7% for 2022 citing that “imbalances in the Chinese economy have worsened and delayed China’s transition to consumption-led growth”.
  • The United Kingdom’s economy contracted by 0.2% (m/m) in December, less than forecasts of a 0.6% decline which indicates that the spread of the Omicron variant in the latter part of 2021 was not as severe as initially expected.
  • Preliminary estimates point to the UK Composite PMI jumping to 60.2 in February from 54.2 in January. This is a welcomed advance after disruptions due to Omicron slowed activity coming into the new year. The improvement in private sector activity is primarily due to an increase in travel and leisure spending.
  • Annual inflation in the UK advanced for a fourth consecutive month in January with the CPI figure hitting 5.5% (y/y). This is the highest reading since 1992 and well above the Bank of England’s (BoE) 2% target. The sustained rise will put pressure on the BoE to raise interest rates yet again at their next meeting.
  • Locally, manufacturing production declined 0.1% in December, thus marking the third consecutive month of contractions. The biggest drag came from the production of vehicles and other transport equipment as supply issues continue to linger. On a more positive note, retail sales rose for the fourth consecutive month, advancing 3.1% (y/y) in December.
  • Inflation slowed to 5.7% (y/y) in January as compared to 5.9% the month before. Whilst this can be seen as a slight improvement, the figure remains near the top of the South African Reserve Bank’s 3-6% target. As such, the consensus is for another 25-basis point hike in the repo rate to 4.25% at the Reserve Bank’s March meeting.
  • The rand had a volatile month due to Russia’s invasion of Ukraine causing investors to seek the comfort of safer assets. As such, the rand is currently trading at R15.38 against the greenback (at time of writing) after hitting a low of R14.91 earlier this month. The rand still managed to end up against all three majors in February, gaining 0.13% against the USD, followed by 0.25% against the euro and 0.32% against the pound.
  • South African equities continue to show resilience and advanced yet again in February. The FTSE/JSE All Share Index returned 1.60% for the month. The resource sector continues to prop up the local bourse due to advancing commodity prices. As such resources gained 14.34% for February, followed by financials with 3.57% and industrials losing 7.73%.
  • One month index movements:
    • JSE All Share Index: 1.60%
    • S&P 500 (US): -3.14%
    • FTSE (UK): -0.08%

Source: and Trading Economics

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Michael Haldane

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