Main Points:
• Geopolitical crises in Europe and Asia (Russia-Ukraine conflict and Iran-Saudi tensions) continue to buoy inflation, particularly transportation, food, and utilities (oil and natural gas). Ukraine is one of the world’s largest wheat exporters. China’s zero-COVID policy is hampering post-pandemic recovery, as millions of its urban citizens are under lockdown measures to contain the latest outbreak. The International Monetary Fund’s latest growth revision is at 3.8% for the overall world economy in 2023.
• The U.S. added 431,000 jobs in the month of March, indicating that the world’s largest economy remains resilient even in the face of strong headwinds. Unemployment in the country is at an astonishing 3.6%. Other nations, such as Canada (which seems to be mirroring European economies), seem to lag behind at 5.73%, perhaps suggesting a dearth of diversification in industry.
• Developing Asian economies (China, India, Vietnam, etc.) are predicted to rebound with higher than average single-digit growth, meaning it seems governments there have reached a delicate balance between COVID containment and getting back to business-as-usual. China is still in the throes of a giant corporate debt crisis, which it believes it can deftly navigate away from with sensible regulation on lending. It remains to be seen if government stimulus can keep capital flight at bay.
• The $119 trillion global bond market, long a safe haven of stability and respectable yield in the face of a low-rate environment, is now showing signs of volatility and stress. With inflation mounting, it means investors are demanding more yield from government or corporate-issued bonds. With central banks forecasted to raise interest rates at a healthy clip, this means companies and governments will find it more difficult to raise capital as investors can seek higher yields elsewhere. Investors are pre-empting interest rate hikes by selling their bonds before maturity. The real question is if the stewards of the economy can get control of inflation and send the bond market back into normalcy. However, the bond yield curve, long a reliable indicator for economic activity, has been inverting briefly as of late.
• Consumer spending is the main driver of service-oriented economies like the United States–about 2/3rd’s of overall economic activity. Inflation and supply-chain disruptions (particularly in the semiconductor, commodities, and automotive sectors), has put considerable pressure on forward-looking economic growth. As consumers are feeling the pain at the pumps and grocery stores, this has sharply decreased consumer spending. However, large savings deposits developed by consumers over the course of the pandemic combined with a red-hot job market has worked to counter-act inflationary concerns. It remains to be seen if central banks can temper inflation gradually without sacrificing economic growth. What is certain is that now consumers have the opportunity to place their excess savings into GIC’s and high-yield savings accounts offering tantalizing returns, further eroding the potential for spending activity.
That wraps up finteger’s global economic brief for April 1st, 2022. Tune in for next month’s forecast. Thank you for reading.
