The expected global recession may not be long lasting
The accelerated reopening of the Chinese economy, the decline in gas prices in Europe, and the slowdown in inflation in the United States confirm that the expected global recession may not be as long-term as was expected a few weeks ago.
There is no doubt that the warning signs of the US and global economy entering a recession are still flickering, especially with the high rate of inflation, and the accompanying hike in interest rates during the past year at the highest pace since the early 1990s. However, developments in global markets, particularly since the beginning of This year, they clearly indicate a return of optimism.
And last month, the International Monetary Fund raised its forecast for global growth for the year 2023, and the outlook changed to the expected recession in the old continent, to keep many from worrying about what could happen.
During the period before the new year,
The MSCI index of world stocks rose 8%, and the risk premium on junk bonds, or debt rated below investment grade, reached its lowest level since the second quarter of 2022.
This is due to the rosy expectations associated with the idea of a soft landing, which says that the global economy will cool down enough to reduce inflation, but not to the point of collapsing corporate profits.
Archyde.com expected corporate profits to improve compared to the low levels recorded last year, in conjunction with the decline in inflation. And she said that, excluding energy companies that are always volatile, earnings per share for companies included in the MSCI global stock index are expected to grow by 4.2% this year, compared to 1.8% expected for 2022, according to Barclays Bank, and then by 9.3% in 2024.
But the rise in stocks does not mean that the world will be immune from recession, although the reopening of the Chinese economy will certainly contribute to reducing deflation. Despite the gains, the MSCI World Equity Index is still down 14% from the peak recorded in January 2022.
Some of the largest companies, such as Amazon, Meta (Facebook) and IBM, laid off thousands of workers, but most of these layoffs came after an overabundance of optimism in hiring over the past two years, in companies that were clearly affected by the reopening and the departure of citizens from their homes, according to Rooney. Walker, economist at Goldman Sachs. But at the same time, Walker believes that this matter does not represent the economy as a whole, but rather the economy of technology companies only.
On the other hand, job growth in the United States accelerated sharply in January, according to data from the US Department of Labor.
During the same month, the unemployment rate in America reached its lowest level in about 53 years, which worried the stock and bond markets, after allowing the Federal Reserve to once again increase its hawkish tone.
Not everyone seems to share the optimistic outlook, as interest rates in the US Treasury bond market still clearly indicate expectations of the US economy entering a recession, with what it depicts as an inversion of the yield curve. This means higher yields on short-term bonds than on long-term bonds, which is one of the famous signs of a recession.
The expectations of dealers in the bond market currently indicate that the Federal Reserve will raise interest on its funds by 50 basis points, to a range of 5%-5.25%, before it is reduced by 25 basis points, at least once, before the end of this year, according to “Archyde.com”. .
Economists polled by Archyde.com predicted that the growth rate of the global economy would not exceed 2% this year, a level that has historically been associated with a significant economic downturn. They pointed to the risk of global growth at even slower rates.
(Archyde.com, The New Arab)