Super Thursday Stocks
The Wall Street Journal reports that interest rate hikes are getting thick and fast
- Switzerland: Rates increased by 0.75 points to 0.5%, making it one of the last central banks to come out of negative territory.
- UK: The Bank of England raised its key rate by 0.5 points to 2.25% and will start selling some of its bond holdings.
- Norway: rate increase of 0.5 points to 2.25%.
- Indonesia: benchmark rate increase by 0.5 percentage points to 4.25%.
- Taiwan: The discount rate increased by 0.125 points to 1.625%.
- Philippines: benchmark overnight lending rate increase by half a point to 4.25%.
- South Africa: Raised the main repo rate by 0.75 points to 6.25%.
- Japan: The Bank of Japan kept the benchmark rate at minus 0.1%. Tokyo then stepped in to support the yen.
- Turkey: Cut its main rate by 1 percentage point to 12%, continuing its contrarian easing campaign.
The risk of a global recession in 2023 increases due to simultaneous rate hikes
The World Bank says the risk of a global recession in 2023 increases due to simultaneous rate hikes
Central banks around the world have raised interest rates this year with a degree of synchronicity not seen in the past five decades, a trend that is likely to continue into the next year, according to the report. However, the currently projected trajectory of interest rate hikes and other policy actions may not be sufficient to bring global inflation back to the levels seen before the pandemic. Investors expect central banks to raise global monetary policy rates to nearly 4% by 2023, an increase of more than 2 percentage points from the 2021 average.
Unless supply disruptions and labor market pressures subside, such interest rate hikes could leave the global core inflation rate (excluding energy) at around 5% in 2023, nearly double what it is. five-year average before the pandemic, the study finds. To reduce global inflation to a rate consistent with their targets, central banks may need to raise interest rates by an additional 2 percentage points, according to the report’s model. If this were accompanied by stress on financial markets, global GDP growth would slow to 0.5% in 2023, a decline of 0.4% in per capita terms that would meet the technical definition of a global recession.
“Global growth is slowing sharply, with further slowdown likely as more countries fall into recession. My deep concern is that these trends persist, with devastating long-term consequences for people in emerging markets and developing economies, “said World Bank Group President David Malpass.” To achieve low inflation rates , currency stability and faster growth, policymakers could shift the focus from reducing consumption to increasing output. Policies should seek to generate additional investment and improve productivity and capital allocation, which are critical to growth and poverty reduction “.
The study highlights the unusually difficult circumstances in which central banks are battling inflation today. Several historical indicators of global recessions are already issuing warnings. The global economy is now in its strongest slowdown following a post-recession recovery since 1970. Global consumer confidence has already fallen far more markedly than in the run-up to previous global recessions. The three largest economies in the world, the United States, China and the euro zone, have experienced a sharp slowdown. Under the circumstances, even a moderate blow to the global economy in the next year could cause it to fall into recession.
Is a global recession imminent?
The World Bank report reflects on the question: Is a global recession imminent?
- Kenneth Rogoff, April 26, 2022: The odds of a recession in Europe, the United States and China are significant and increasing, and a collapse in one region will increase the odds of a collapse in the others … The risks of a triple global recession are increasing day by day.
- Jeffrey Frankel, August 25, 2022: A global recession is entirely avoidable … Even with less stringent criteria such as GDP growth of less than 2.5%, the global recession is far from inevitable.
- Anne O. Krueger, August 25, 2022: Whether the balance of risks is towards inflation, recession or a smooth landing from the current turmoil depends on unknowns such as the duration of the war in Ukraine……. But a global recession is certainly not inevitable.
- Jim O’Neill, August 25, 2022: If these two economies (the US and China) are both in their respective versions of recession, that will virtually guarantee a global recession. Given their current weaknesses and challenges, such a scenario is entirely possible … But I’m less convinced than I was probably a few months ago …
- Stephen S. Roach, August 25, 2022: Despite the pitfalls of predicting anything these days, my cracked and worn crystal ball is seeing a global recession that will occur in the next year…. Overall, Europe, the United States and China account for around half of world GDP at purchasing power parity. Without another economy to fill the void, I fear a global recession really seems inevitable.
Definition of global recession
There is no consensus on the definition of a global recession.
Some economists suggest growth below 2.5%, some use per capita growth, others indicate falling real GDP.
Fantasyland projections against the inevitable
Jeffrey Frankel is in pure Fantasyland believing 2.5% growth is possible. Roach is undoubtedly correct.
China is in the midst of an imploding housing bubble. Europe will experience a severe recession due to a war-related energy crisis and the US consumer is struggling under the weight of Fed rate hikes and the housing slump.
First, we have had unprecedented fiscal and monetary stimulus. We now have unprecedented monetary tightening, but fiscal conditions are still loosened.
The real question
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In general, central bankers have moved from stern to bow and back, in unprecedented quantities, hoping first to provoke inflation, now to stop it.
When does this massive central bank overturn cause a global currency crisis?
This is the real question why a severe global recession is inevitable.
Meanwhile, we have extremely optimistic Fed forecasts.
Review of the Fed’s GDP projections for 2022 and 2023
Please consider extremely optimistic forecasts: examining the Fed’s GDP projections for 2022 and 2023
100% of Fed participants expect no less than an all-time high of GDP in Q4! The median expectation is higher.
The Fed makes no predictions, the Fed makes Fantasyland’s wishes.
What an incredulous crap.
This post originated on MishTalk.Com
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