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Darius Epstein
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The world experienced an exogenous shock in 2020, creating a global recession, but quickly confused by an early and aggressive government response. Leading countries have led this expansive movement both fiscally and economically, which allowed a “V” exit.. But the consequences have remained: high fiscal deficits, a mountain of debt, currency devaluation against the strengthening of the dollar, monetary expansion and zero interest rates that have fueled an inflation not seen in 22 years, which only last year become the biggest problem. The interruptions of the production chain around the world and the protectionist measures adopted by the various governments have added fuel to the fire.
That’s why central banks started this year with aggressive rate hike policies of interest to try to mitigate the impact of inflation (late but certain), causing a slowdown in growth. The US Federal Reserve was removing part of the incentives for its economy, applying this year the first hikes in the reference rate which should continue until mid-2023 in a very aggressive hike cycle. Other major central banks are following the trend, but stepping back.
I know the era of abundant and infinite money ended, and the consequences are also not free. The aggressive tightening of monetary policy by central banks in developed countries is generating another general headache that the world will have to deal with next year. The rate hike it increases the cost for businesses and makes consumer loans more expensive, decreasing consumption. The same goes for housing, car leasing, credit card balances, etc.
The aggressive policy of the Federal Reserve I drift into a super dollar which, in turn, affects global growth.
This year the world economy suffered a sharp slowdown in the second half of the year and is preparing to do so a first half of 2023 recessive in the core countries. The leading indicators of the cycle (ISM), as well as the different series of surveys of entrepreneurs, builders and consumers, anticipate this with confidence on the floor.
Looking at the IMF’s projections for October, we observe a drop in global growth to 2.7%, with a very negative figure for advanced economies of just 1.1%. The world’s largest economies, the United States, the Eurozone (where the energy crisis caused by the war in Ukraine will continue to weigh heavily) and the United Kingdom will remain stagnant and will experience a recession. Brazil will suffer. China will speed up, but it won’t be ‘China rates’ due to a weakened housing sector and continued Covid restrictions.
But the Federal Reserve’s latest estimates, released this week, are spot on an even worse growth scenario, with growth of 0.5% in both 2022 and 2023, the equivalent of a recession. Unemployment would rise from the current 3.7% to 4.6% and would stabilize at these values for at least two years.
Although the inflation rate showed a sign of deceleration higher than estimated for the second month in a row, the expectation of interest rate hikes does not ease: Most Fed governors already see the inflation rate above 5% next year and the median interest rate at 5.1%. The interest rate story is not over yet, and that Europe is lagging behind in terms of the level of rates, with much higher inflation.
Also Let’s take a look at what is happening in China.: Domestic demand in the world’s second-largest economy has fallen sharply and inflation has fallen to a healthy 1.6% year-on-year, but will resume its upward course when consumption picks up again in 2023, which should be a year better than that is ending.
Also added is the fact that there is oil the lowest values in a yearwhich could also give a rebound that impacts inflation rates once again, hence the prudence of the Fed and its refusal to deviate from the original plan.
The year 2023 is considered bad economically for the economies of the core countries, but we know that financial markets discount soon What’s happening in the economy: have we seen the worst in terms of falling markets? The question is still open. Not to get ahead of yourself, volatility is the order of the day.
Source: Clarin
