TVC Economic Review: What happened in Quarter 3 2022?

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

In this Economic Review blog, we look back at the third quarter of 2022 and consider events that moved the markets in Q3. We summarise trends, developments, financial data, and major events that impacted the economy globally and locally over this time period. Assessing the performance of the economy is key to understanding the world around us, and is especially important for investors and business owners to take note of.

Every quarter, TVC Health and Wealth Managers release an economic review blog post looking back and providing analysis on what happened economically in South Africa and globally during that time. You can read last quarter’s economic review here.

Q3 2022 Summary

Many of the factors from the last quarter continue to play an influential role in quarter 3, including inflation, geopolitical instability, and slow economic recovery. Factors such as the energy crisis in Europe and China’s strict zero-Covid policy hamper global growth, even as the dollar strengthens dramatically and fuel costs soften. 

While South Africa has performed somewhat better, with annual inflation easing and a slight decrease in unemployment stats, we were not spared the impact of a struggling global economy. Added to this, the local market continues to be eclipsed by rolling national blackouts and slow structural reforms. 

Europe braces itself for a tough winter. (image source:

Global Markets

Stubborn Inflation

Still top of mind quarter 3 was persistent global inflation, which remained high even as it was capped by stabilisation of commodity prices and lower fuel costs. In August, the United Kingdom inflation topped 10%, the highest in 40 years, and in September, inflation in the United States was at 8.3%. Fortunately, consumer price and manufacturer price data suggest that global inflation may have now peaked, and is now predicted to reach 8.7% in 2022 and then fall to 5.3% in 2023.

What is inflation and why is it affecting everything so much?

Inflation is the increase in the prices of goods and services across a broad range of spending categories – food, fuel etc – over a period of time. If the cost of basic goods goes up by more than what people are earning, this can erode consumer purchasing power, which means people spend less or are not able to afford the same standard of living. Higher inflation means the cost of living and doing business around the world goes up, it is also especially painful for equities. 

The reason for current inflation being so high is nuanced and complicated, however, in simple terms attributed to the knock-on effect of the global Covid-19 Pandemic – disrupted supply chains and shipping delays now struggle to keep up with the rising household demand of a recovering world. Labour shortages have only exacerbated this problem, and so the prices of goods go up. Russia’s invasion of Ukraine also had an impact, namely to the rising energy prices we saw in quarter 2.

Interest Rate Hikes

In order to combat high inflation, a tactic used by central banks is to raise interest rates*, making borrowing more expensive. This is done to encourage consumers to save, influence consumer demand for goods and services, and in turn, cool inflation

In late September 2022, a slew of central bankers across the world hiked rates by a cumulative 600 basis points (6%). In quarter 3 the United States Federal Reserve – the central bank for the country – hiked its Federal Funds rate by a combined 150bps, in a historically aggressive policy tightening move. This despite the fact that annual inflation in the U.S. eased to 8.3% in August from 8.5% in July, speculatively to prevent higher inflation levels from becoming embedded into the broader economy.

(*An exception to this is The Bank of Japan, which has not raised interest rates or deserted its cap on long-term bond yields, instead turning to direct currency intervention.)

Sadly, the consequences of further interest hikes on a global scale were felt by consumers and businesses in this quarter. Interest rates also weighed on bond prices, with risk-off sentiment sending most markets into the negative – particularly emerging market equities. 

And the question still remains; will the rate hikes succeed in killing the monster of inflation?

High inflation impacts the cost of basic goods and services. (Image source:

Global growth revised down
As a result of monetary policy tightening, and other factors, global growth was unsurprisingly revised down again and is expected to have an impact into 2023. The International Monetary Fund (IMF) – an organisation of 189 member countries – has forecast global growth of only 3.2% for this year and 2.9% for the next (this compares to an average world economy growth rate of 3.4% since 1980).

Other conditions that hindered growth and moved the markets in quarter 3 were:

  1. The ongoing Russia-Ukraine war: Geopolitical instability and conflict remains a top concern. In September 2022, President Putin ordered Russia’s first wartime mobilisation since World War II, and announced plans to annex four Ukrainian provinces.
  2. The energy crisis in Europe: Much of the European continent currently faces an energy shortage, due to an overreliance on Russia for oil and gas. This in turn heightens the risk of recession for the region. As a tough winter looms, energy conservation measures are now observable in parts of Europe and the UK.
  3. China’s continuing economic slowdown: In Q3 China suffered its worst outbreak of the Covid-19 virus since early 2020, and government-imposed restrictions meant an unexpectedly significant economic slowdown for the country. Added to this is their weak property market. China represents almost 19% of global gross domestic product.

Global Bonds, Equities, and Note-worthy Indexes 

Heightened market volatility during the third quarter meant that government bond yields were generally higher and credit spreads wider across the global market, which weighed heavily on market returns. Global equity markets outside of the United States have completed a third negative quarter. Advanced-market equities performed slightly better than emerging markets, but for the year to date, emerging-market equities are in the lead. 

Most noteworthy was perhaps the falling price of oil (brent crude oil lost 23.4% in US$), but supply cuts could be on the horizon. Also of note during the quarter was the meltdown in United Kingdom bonds and the pound currency on the back of new Prime Minister Liz Truss’s surprise introduction of certain tax and government plans.

Looking at the Indexes, The MSCI Indexes – which is a measurement of stock market performance in a particular area – were as follows:

  • the MSCI All Country World Index returned -6.8%
  • the MSCI Emerging Markets Index produced -11.6%

The Standard and Poor’s 500 – which is a stock market index usually referred to as simply the S&P 500 – decreased by -4.9% in the third quarter.

The Strength of the Dollar

Of significance was the strengthening of the U.S. dollar currency against almost all currencies, with experts viewing it as overvalued. For example, the South African rand weakened by almost 11% against the U.S. dollar this year, the British pound lost at almost 18%, the euro almost 14%, and the Japanese yen at 20%. There are various reasons for this, including the fact that the dollar is also considered a “safe haven” by investors and that the US produces quite a bit of its own oil and gas. 

Graph showing how the dollar currency has not been this expensive in decades. (Graph source: Allan Gray)

Local Markets

While the local market performed better than global trends, we were not spared the impact of slow global growth and it was another somewhat difficult quarter for South Africa, as the legacy of Covid-19 is felt against pre-existing national challenges. 

Inflation, Interest rates

In positive news, the country’s inflation eased to 7.6% year on year – this from an over 13- year high of 7.8% in July, and marginally above market expectations of a 7.5% rise. This deceleration was due in part to the softer fuel prices in August 2022. However, this did not prevent further interest rate hikes, with The South African Reserve Bank (SARB) following the United States with a total of 150bps of interest rate hikes during quarter 3. We saw a steep hike to 5.5% in July and then to 6.25% in September, in an attempt to curb local price pressures and protect against rand / dollar weakness.

Still Hindered by Load Shedding and Lack of Policy Reform 

Major factors that continued to impact the markets in South Africa during this quarter was severe load shedding and slow policy reform. In September 2022, a total of 1 503 GWh was estimated to have been shed, with 572 hours of the month’s 720 hours directly affected by the national power cuts, according to Eskom data. Frequent and prolonged power cuts inevitably continue to hinder business and growth, and significantly disrupted economic activity in Q3.

While we are a step closer to the extradition of fugitive Gupta Brothers, who were implicated in the country’s State Capture Inquiry, we saw South Africa narrowly miss being added to the ‘greylist’** by The Financial Action Task Force (FATF) – an intergovernmental organisation which monitors countries on their laws of good and transparent management of finances. This is due in part to South Africa’s inability to effectively prosecute guilty parties for various financial crimes, such as the Zondo Commission, and the declining performance of state-owned enterprises.

(**According to the International Monetary Fund, a greylisted country can expect a decline in capital inflow, a decrease in foreign direct investment, and a decrease in portfolio inflow.)

Growth & GDP

In line with the global economy, growth has been downgraded locally as well. The Reserve Bank now expects growth to be 1.9% this year, instead of the previously predicted 2.0%. It also downgraded its forecast for growth sharply for the following years to 1.4% in 2023 and 1.7% in 2024.

When it comes to gross domestic product (GDP), a measurement that seeks to capture a country’s economic output over a period, the figures don’t look good either. After recovering to pre-pandemic levels earlier in the year, South Africa’s GDP has since contracted – according to Quarter 2 reports, which show a decline of 0,7%. This is due to the scarring impact of the pandemic on employment, a deteriorating global environment, destructive flooding, and continued power cuts. Fortunately, economists are forecasting that growth will pick up in the second half of the year, so watch this space. 

Employment & Consumer Sentiment

When it comes to joblessness, August’s statistics of 34% might have been less than the previous quarter, but the situation is still dire. In an attempt to combat this, more people are set to qualify for the Social Relief Distress (SRD) grant, as the Department of Social Development gazetted changes to the payout regulations. South African consumer confidence remained depressed, despite picking up slightly in the third quarter – supported by a lift in confidence in the lower income segment.

Noteworthy South African indexes

The FTSE/JSE Africa Index Series represents the South African equity market and its market segments. The acronym FTSE refers to The Financial Times Stock Exchange and the JSE stands for Johannesburg Stock Exchange – and this is a long-standing partnership developed to combine FTSE Russell’s world-class multi-asset capabilities with the regional expertise of the JSE in Africa. 

The FTSE/JSE Top 40 Index consists of the largest 40 companies ranked by investable market value in the FTSE/JSE All-Share Index. The two-way turnover for Top40 Index was 0.6% in Q3, compared to 1.0% in the last quarter. The Capped SWIX All Share Index consists of the companies in the SWIX All Share Index (J403), with weightings capped at 10% to reduce concentration risk. The Capped SWIX All Share had a two-way turnover of approximately 3.45% (compared to 2.0% of last quarter).

Looking at these indexes, we can see that despite a rocky start in the year and continuous market volatility, the JSE has fared well relative to its peers. (refer to graph below)

This table illustrates the JSE Top 40 performance compared to other global markets (image source:

All sectors of the equity market delivered negative returns for the quarter: the FTSE/JSE All Share Index (ALSI) returned -1.9% and the Capped SWIX -2.4%. SA bonds continued to put in a marginally positive performance: with The FTSE/JSE All Bond Index (ALBI) delivering 0.6%. On the other hand, SA property had one of its worst quarters. 

Looking Forward

Baseline inflation forecasts are likely to remain elevated in 2023, as supply chain issues due to the war in Ukraine and China’s zero COVID-19 policy are also likely to persist. Another key risk into Q4 2022 is energy price shocks, which could accelerate price growth. 

However, the current macroeconomic cycle won’t last forever. It may be a long road back to low inflation, but action from the U.S. Fed and global central banks aim to set a course for stabilising conditions and restore price stability. While the threat of a global recession still looms, South Africa’s economy has returned to pre-pandemic levels this year. With some room for improvement, we have at least seen promising signs of recovery and thereafter expansion into 2023.

The Investor Perspective

The current economic cycle we find ourselves in is one of the most complex and unique we have seen. Given the level of uncertainty economically as well as politically, combined with the impact of unusual circumstances (i.e. the Covid-19 pandemic), we are seeing a quick-moving and unpredictable cycle. Naturally, this is leaving many investors on edge.

Investing can be the best way to safeguard against inflation. (Image source: Pexels)

Fortunately, we have seen that, in times of negativity, investment opportunities typically emerge. The best response to unpredictable events is to take a longer view in remaining invested, as well as maintaining a diversified portfolio of different asset classes, sectors, regions, and style characteristics. 

Investing can also be the best way to safeguard against inflation, because storing money “under the mattress” or in a regular bank account won’t provide you with near the same returns in the long-term (history has shown that you need exposure to risk assets, such as shares). 

Be on the lookout for a possible recession, as this would likely mean a decline in economic activity over a sustained period – normally visible in indicators like production, employment, and real income – and lead to struggling stock markets. As consumer confidence and spending decrease, companies may be forced to lay off workers, which can lead to more weakness in risk assets.

What You Can Do

Professional advice from TVC Wealth and Health Managers is the best way to approach your investment portfolio. It’s important to remain invested through the good and the bad – often the worst days in the market are followed by the best days. If you’re patient, you’ll be amazed by the power of compounding over time! Contact us today.

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