2022 was a tough year with the war in Ukraine and central banks’ battle against inflation being equity and bond markets’ main sources of difficulties. At their last meeting the US Federal Reserve (Fed) slowed from their recent 75-basis point (bps) hikes by hiking their benchmark interest rate by a further 50 bps, reaching the highest level in the last 15 years. Fed officials indicated that they expect to keep rates higher next year and that it’s important to keep up the fight against inflation so that the expectation of higher prices does not become entrenched.

Furthermore, the declines in inflation in October and November were welcomed, but substantial more evidence are needed to have confidence that inflation is on a sustained downward path. Not everything was negative, however, because global supply chain constraints continued to ease, and European governments showed their intention to limit the impact of the energy crisis and mitigate the risks of a harsh recession.

In the UK, Rishi Sunak was appointed as the new prime minister, while the new chancellor, Jeremy Hunt, reversed many of the previous chancellor’s tax cuts and promised to deliver a more restrained budget in mid-November. In China, policymakers started easing their strict zero-Covid policy measures, creating hope for the rest of the world that their economy will fully open up in the near future again. In Japan, the Bank of Japan surprised the markets by widening the gap in which 10 -year government bonds can trade from 25 bps to 50 bps, which led to the highest yields on two- to 10-year yields since 2015.

Local GDP in the third quarter of 2022 (Q3) surprised strongly to the upside at 1.6% quarter-on-quarter (q/q) from the 0.7% q/q contraction in the second quarter (Q2). Eight out of 10 activities expanded in Q3, with the agricultural sector (19.2%) making the biggest contribution. The unemployment rate declined to 32.9% in Q3 from 33.9% in Q2, which is the lowest jobless rate since the first quarter of 2021.

In October, Finance Minister Enoch Godongwana presented a 2022 Medium-Term Budget Policy Statement (MTBPS) which projects a much stronger fiscal consolidation path compared to the February budget, but the spending targets are unrealistically low. The reason for this is because they are not including various upside spending pressures, such as a public sector wage hike in FY23/24, the extension of the Social Relief of Distress grant beyond FY23/24, and the costs of any Eskom debt deal, etc.