Bite-Sized Q3 2023 Economic Analysis: A Brief Overview

Disclosure: This article is posted to inform readers and not to provide financial advice.

What is an Economic Review & Why is it important?

Regardless of our varying comfort level with financial concepts, the economy is determining what a large portion of our lives look like day-to-day; in fact, much of your personal financial trials and tribulations can be traced back to the whims of the economy (savings, job prospects, spending power, investments etc.). Crudely put, doing “economic analysis” often involves taking an economic factor (like rising inflation) and considering its influences across various aspects of our lives. A healthy exercise for anyone.

A quarterly review is a retrospective on the economy’s performance in the previous three months, examining factors like GDP, inflation, employment rates, and other indicators. Leveraging insights about these metrics can help us capitalise on financial opportunities and mitigate against sore financial losses. This review will look at the third financial quarter of 2023, both from a global and local (South African) perspective.

In this TVC Economic Review we reflect back on the last quarter and recap what moved the markets in Q3 2023

Third Quarter Global Overview

No magic fix presented itself in the third economic quarter of 2023, with a strong sense that we are “still wading through the mud” whilst somehow managing to sidestep a full blown recession. Global economic growth has been sluggish, standing at 3%, and in some regions is getting even slower. This is in no small part a byproduct of the exceptionally high interest rates (a major theme this quarter). There are calls for interest rates to be “higher for longer” – an attempt by central banks to remedy high inflation that has been hanging on (both core inflation and headline inflation). There are suggestions that these high interest rates might soon (not yet) have reached their peak – in other words, achieved the goal the central banks outlined for them. Until this peak occurs, significantly high interest rates were the defining characteristic for Q3. The hiking up of interest rates can be felt in multiple ways, especially in the tightening of credit conditions – home purchases, loans commercial real estate, potential loan defaults/missed payments etc. Not only does it become more expensive for us to borrow money, when interest rates get so high, it becomes expensive for banks to borrow money as well. This then sets in motion things like a more conservative stance on lending, lower returns on savings, and ultimately moves banks into shaky territory. 

One way that the particular variables of this quarter got translated was in declining government bonds. The financial principle in this scenario to wrap your head around is that, a decline in government bonds sees their yields increase. Whether this decline is a good or bad thing depends on your vantage point. As a bond holder you will see capital losses, investors might see higher returns, and from a macro perspective these declining government bonds could signal decline in economic growth.

Other than a negative equities market, highlights of the commodity market and the dip in consumer confidence (all of which will be mentioned later in the review), another facet of the economy in Q3 was how the global real estate market behaved. The real estate market did not have clean global themes, instead it did very different things in different regions. While the UK saw stabilising prices but muted transaction activity, Europe is still undergoing corrections with possibility of further decline. Over in North America, various sectors, especially office and retail, faced distress amid declining transaction volumes and interest rate pressures.  In the Asia-Pacific regions, office markets are faring better due to structural factors, but concerns over vacancy risks persist. On home territory, South Africa’s property market faced significant challenges reflected in declining share prices of listed property funds, various – much complained about – industry hurdles being the culprit here.

Image source: Canvas – Illustrating the prevalence of very high interest rates in Q3

Local market overview

In our own backyard – South Africa – the market mirrored the global economy in many ways, with general growth losing steam, joined by a declining stock market. Although further interest rate hikes were put on pause, local events like taxi strikes, escalating power cuts (September saw us knocking at the door of Stage 7!), and a series of floods in the Western Cape (agriculture hit the hardest) all had an influence on the local economy. Compounded by a constrained national budget that seems to not be stretching as far as it needs to – in some part due to declining revenue collection –  households especially suffered in terms of increased debt and less disposable income. Also top of mind for households was high food inflation, with essential food prices increasing in South Africa (unlike global price trends). In response, investor sentiments and consequently, the South African rand, depreciated.

Relative to the economic expansion seen in Q2 in South Africa, the third quarter saw economic stagnation, 33.5% unemployment, a narrowed fiscal deficit at -3.7% (still a deficit but a small one), and increased public debt at 71.1%. Some of this is due to the national crisis related to power, rail, and port – infrastructure issues that are reflected in credit rating downgrades and rising debt. Inflation sat at 4.8% and is starting to rise as we move towards 2024.

The Global Economy

Equity Market

As is typical with various economic influencers, high interest rates pulled all sorts of strings across the economy. For one, the stock market suffered big losses in the third quarter, particularly in August and September, propelled by climbing interest rates. In fact, interest rates caused a $6 trillion downturn in the equity market, even impacting common gainers like tech giants and affecting investment portfolios, consumer confidence, and pension funds. 

Energy-related stocks rose alongside fuel price hikes (pushing up inflation) linked to production cuts (Saudi Arabia and Russia) and higher demand from China. These factors – lower production and higher demand – put a spanner in the works when it comes to curbing inflation. It would not be remiss to add here that despite the fact that there has been an obvious shift happening away from traditional energy funds, the third quarter saw renewable energy funds suffer, a decline also in big part due to pesky high interest rates.

As consumer confidence waned and spending took a hit – showing signs of slight recessionary behaviour – specific sectors felt the brunt. Industries directly tied to consumer activity, like utilities, real estate, and non-essential consumer goods, experienced a notable weakening.

Finally, the world’s primary reserve currency, the dollar, rose nearly 6% since mid-July – impacting other currencies globally, really hitting emerging markets.

How did the different regions do in quarter 3?

  • United States: In the third quarter, the U.S. economy showcased robust growth, expanding by almost 5%.  
  • Eurozone: The Eurozone’s third-quarter GDP fell slightly below expectations, with a 0.1% contraction quarter-on-quarter and a slower year-on-year growth rate of 0.1%, impacted by varied growth rates across member countries, notably contraction in Germany and stagnation in Italy, amid challenges from high inflation, record-high interest rates, and fiscal policy adjustments.
  • United Kingdom: The UK economy remained stagnant in the third quarter, with GDP showing no growth, avoiding a technical recession despite a slight economic dip.
  • Japan: In Japan, the economy seems to have shrunk in the third quarter due to weakened consumption and exports impacted by slowing demand in China. 
  • China: Economic performance in China in Q3 showed a growth rate of 4.9%, surpassing analyst expectations, with indicators such as industrial output, retail sales, and GDP all exhibiting better-than-expected results, suggesting that policy measures are bolstering the economy, yet challenges from a property crisis and other headwinds remain.
  • Emerging Markets: Ongoing uncertainties, particularly concerning increased US interest rates, contributed to varied performances among emerging economies.

*Emerging markets are developing nations on the verge of integrating into the global economy, showcasing characteristics of both developed and underdeveloped markets. For example, the BRICS nations – Brazil, Russia, India, China, and South Africa – are typically classified as emerging economies.

Global GDP

In a world where GDP has been heralded the golden number of growth, the divergence between emerging markets and developed economies was notable, with emerging markets taking centre stage. The world’s combined growth stood at 3%. Interestingly, it was the emerging markets driving global GDP at 4% with the developed economies lagging behind at 1.5%. Comparing growth rates among major economies, the U.S. came out on top showing a more positive growth outlook, unlike the euro areas, or China which is currently knee-deep in a real estate crisis.

Global Trade Dynamics

Global trade has steadily slowed over the last two years, with quarter three showing marginal improvements that did not rouse too much enthusiasm. While food and chemicals sectors improved slightly, trade overall – especially in services – remained negative. The Purchasing Managers’ Index (PMI) New Export Orders Index, useful when getting a handle on global trade as it shows the volume of new export orders in the manufacturing sector, rose from 47.9 in August to 48.1 in September. This signals a significant decline, particularly in service trade (NB to most modern economies), disrupting the goods-services balance.

Global Markets: Commodities

How did commodities do in the third quarter? The S&P GSCI is a leading commodity index designed to reflect the performance of a diversified group of commodities traded in global markets. It tracks the price movements of various commodities, including energy, agriculture, industrial metals, precious metals, and livestock. The S&P GSCI index spiked in Q3 because energy prices shot up, thanks to oil production cuts by Russia and Saudi Arabia. Energy was the star performer, while natural gases went down. Industrial metals made modest gains, but agriculture ended with losses. Precious metals like gold and silver took a hit during the quarter.

Some Geo-political risk

A number of geo-political risks between regions had an influence on the state of the global economy in quarter 3. The Russia/Ukraine conflict has been an instigator for many of the economic tensions that have come up. High inflation, which has been such a dominant theme, can be said to be in many ways a direct fallout of the Russia and Ukraine conflict. This conflict has introduced substantial risks across multiple domains including capital flows (movement of money for the purpose of investment, trade, or financing), trade, and commodities, causing concerns for global markets. Other factors rooted in this conflict other than rising inflation include extreme poverty, food insecurity, deglobalization, and worsening environmental degradation.

In Q3 we also observed persistent cyberattacks, exposing global digital vulnerabilities, risking national security and financial stability. 

The well documented trade and military tensions between the US and China have intensified concerns about economic decoupling – a process where two economies reduce their interdependence. This friction has led to tariffs and export restrictions, creating uncertainties in global trade dynamics and market stability. 

Climate-related challenges, including severe weather events, resource scarcity, and resistance to renewable energy sources, have heightened geopolitical tensions across various nations. These challenges have created ripple effects, impacting economies and international relations.

Moreover, Europe’s energy security has been jeopardised by the loss of access to affordable Russian gas. This, coupled with cyber threats targeting the energy sector, has amplified concerns about energy stability and its broader economic implications.

South African Economic Landscape Q3

As already mentioned, the third quarter has been framed by economic challenges in South Africa. Major disruptions, taxi strikes, ongoing load shedding, depreciating rand, negative asset classes, rising oil prices, and newsworthy high food inflation (both a product of international trade and weather conditions).

Image source: Canva – Record import of solar panels in South Africa

On a positive note, our GDP rose by 0.6% in Q3, in the main part due to growth in manufacturing and finance, with Gauteng’s regional economy showing significant strength. Meanwhile the local energy sector continued to decline. Although there was slightly less load shedding (it peaked towards the end of the quarter) and increased electricity production, mining activities decreased in this quarter. The GDP growth that did occur was supported by investment occurring in infrastructure – particularly in machinery and renewable energy. While renewable energy is not necessarily contributing to the GDP as it is businesses importing tech from abroad to cope with the energy crisis, putting more pressure on the Rand currency –  it did translate to some job creation on the upside. This coincided with a more general confidence in the construction sector stemming from a rise in construction activity, increased profitability, and the broader economic recovery; offering potential implications such as job creation, investment opportunities, and accelerated infrastructure development.

Image source: Statistics South Africa (Stats SA), South African Reserve Bank (SARB), and Nedbank Calculations

South African markets:  Inflation, Manufacturing, Ports, and Household Strain

On a similar trajectory to global trends, fluctuating inflation alongside surging fuel prices has left a mark on several sectors (most especially manufacturing), bringing many businesses to their knees, as indicated by business cycle indicators. Despite the stability in exchange rates and marginal gains on the JSE, the economic landscape bore the brunt of these fluctuations.


Manufacturing has been hit head-on by the energy crisis in SA. The decrease in confidence in the manufacturing sector was reflected in the Purchasing Managers’ Index (an economic indicator used to assess the prevailing direction of economic trends in manufacturing and service sectors) which ultimately influenced local and export sales. The predictable and brutal challenges in production and disruptions in supply, combined with lower demand, meant a reduction in workforce and reluctance to hire new employees. Despite these factors, the future business outlook is cautiously optimistic in South Africa coming into quarter 4.

Port Disruptions and Economic Repercussions

During Q3, Saldanha Port, managed by Transnet in South Africa’s Western Cape, encountered multiple equipment breakdown leading to significant disruptions, disruptions becoming more frequent with ever more breakdowns as well as weather conditions. A slowing of ports and rail is bad news for trade and exports, with increased costs and supply chain issues. Some industries will find this crippling, reducing productivity, revenue losses, and potential job cuts. Ultimately this means a loss of South Africa’s competitive edge in global trade and deter foreign investment. 

Household Strain
Q3’s economic status in South Africa has placed strain on its populace. Elevated interest rates have added incredible stress to households, leading to real and nominal declines in take-home pay, low confidence for businesses, and a low willingness to spend among consumers. Amidst soaring global interest rates, the decision to maintain the repo rate at 8.25% comes as one relief and a semblance of stability in an otherwise unrelenting financial climate.

Looking Ahead

The last few economic quarters have been dominated by cause-and-effect conversations around alarmingly high inflation. However, trends suggest that inflation will continue floating above target inflation for most economies for a while yet, so talking about healthy inflation only begins looking like a reality come 2025. 

A big conversation that has started and will continue is around the future of globalisation. Factors like the pandemic, rising nationalism, and protectionist policies all show impulses away from globalisation. These uncertainties have had a palpable effect on global trade as governments look to diversify imports and insulate themselves from potential disruptions.

Q4 global economic projections hint at a significant slowdown, whilst potentially making a discernible shift away from the prolonged era of high interest rates. This shift would be in part due to weakening economic growth and diminishing price pressures (the central banks counter move to stimulate the economy, much like in a game of chess). The spectre of potential recessions looms over Europe and, to some extent, the US, reflecting tightening financial conditions and reduced credit growth in advanced economies. While energy price hikes might drive up headline inflation, declining core inflation (especially in the US) could counterbalance these impacts.

Amid this economic landscape, major central banks like the Fed, ECB, and Bank of England are considering fewer anticipated interest rate hikes, even mulling over potential early rate cuts. China, however, faces a challenging path ahead, with a brief expected recovery while emerging markets show inclinations toward policy easing. Despite a year of 3.1% global expansion, growth expectations for 2024 have tapered, raising concerns about subpar growth and the risks posed by persistent inflation or abrupt policy adjustments. Western central banks are treading cautiously, refraining from immediate aggressive rate cuts despite slowing growth.

Q4 sees a deepening of many of the crises present in Q3. The equity market in Q3 can be described as high risk. The fourth quarter does not see the equity market steadying too much especially as equities and bonds are likely to face widening multiples (ratios of stock prices to certain measures like earnings or book value). Analysts suggest favouring cash for a second consecutive quarter. Similarly, we have not seen the back of the European gas crisis, driven by reduced Russian exports, and any escalation in geopolitical tensions might further disrupt gas exports. However, improvements in nuclear and wind power offer some relief in European markets. Renewable energy dynamics and bearish carbon prices, amid increased auction supplies, shape market expectations for the upcoming quarter.
In the final stretch of 2023, South Africa’s economic landscape has not made it to smoother terrain. The country’s pulse, measured by the RMB/BER Business Confidence Index, is faltering at 31 points, a stark indicator of a collective unease among different sectors. South Africa finds itself grappling with an electricity crisis that’s eclipsing previous blackout records. These mounting challenges in infrastructure and electricity, complicate the path for businesses across the board. Isaah Mhlanga, the Chief Economist, points to weakening demand as a key driver behind this downward spiral, painting a picture of considerable economic headwinds ahead. Hold on tight, be informed, and make financial decisions that take what is happening in the economy into consideration.

The Investor perspective

In navigating the complex world of investments, adopting a strategy tailored to your individual goals is crucial. Our approach emphasises aligning your investment choices with your unique risk tolerance and financial objectives.

Research consistently demonstrates that engaging with a financial adviser can significantly enhance investment outcomes. On average, investors who collaborate with financial advisers, particularly Certified Financial Planners (CFPs), realise notably higher annual returns. This advantage stems from a financial adviser’s expertise in harmonising your investment portfolio with your personal goals, considering critical factors like tax efficiency, estate planning, liquidity requirements, and other specific needs unique to your situation.

We invite you to consult with one of our experienced advisers. By doing so, you can ensure that your investment decisions are well-informed and strategically aligned with both your immediate and long-term financial aspirations. Let us guide you towards achieving your financial goals with confidence and clarity.

At TVC Wealth and Health Managers, we know how tough it can be when volatility peaks. 

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