Weekly global economic update

The week of June 12, 2023 is a good time to be optimistic.

o Reasons not to be pessimistic When I talk to some of my clients, I notice a strong sense of pessimism regarding the state of the global economy. For the past two years, many people have held the belief that it is only a matter of time before the economic situation significantly deteriorates. Obviously, there are dangers to the worldwide economy, and there are genuine motivations to stress. In fact, the majority of my work involves worrying. Nevertheless, it is beneficial to consider the positive aspects of the situation. In point of fact, the global economy has experienced a number of unexpectedly positive developments. Many people were wrong to think that things would be bad. Let's look at a few.

o Ukraine. The conflict in Ukraine has taken a horrendous human cost and there is no foreseeable endgame. However, it was anticipated that the war would have a significant economic impact, particularly in Europe. Europe, on the other hand, has performed admirably. This is in part because oil and natural gas prices have fallen so dramatically since their peak shortly after the war started. In addition, European governments were successful in obtaining alternative energy sources and avoiding a crippling energy shortage even when Russia attempted to weaponize gas. Furthermore, numerous state run administrations furnished their shoppers and organizations with financial help to counterbalance the effect of higher energy costs. Europe's economy continues to expand despite the fact that the energy shock significantly contributed to the current high level of inflation and that the major European central banks have significantly tightened monetary policy.

o The economies of Europe and North America's resilience. It was anticipated that both North America and Europe would quickly enter a recession, possibly a deep recession, following monetary and fiscal tightening and the outbreak of the war in Ukraine. This hasn't happened yet, and it might not happen any time soon. The resilience of both economies has been remarkable. The decrease in the cost of energy, particularly in Europe, is one factor in this. In the US, it originates from tough customer spending in which families plunged into the gigantic pool of reserve funds collected during the pandemic. In addition, they have not yet exhausted that resource.

o Versatility of business. There was a fear that the global economy would not function properly when the pandemic started and people were forced to work remotely. Even though there were disruptions, the pandemic only lasted for a short time. Using technologies that allowed for remote interaction, many businesses, including ours, were able to operate quite successfully. It is most likely protected to say that, assuming the pandemic had occurred in 1980, the financial effect would have been undeniably more serious given the shortfall of PCs, cell phones, and the web. However, there are these technologies, and the pandemic made us use them more than ever before—to the point where we probably will never go back to where we were before. Naturally, the concern right now is that our major city's central business districts might become redundant.

o Rapid inflation reduction. At the point when expansion began to flood in 2021, there were many voices wailing over another period of forever higher expansion. Clients were looking to the experience of the 1970s for advice on how to run a business during a time of high inflation. All things considered, expansion topped in mid-2022 and has been declining from that point forward in North America and Europe. It scarcely made headway in East Asia. Investors' expectations of a quick return to low inflation are shown by measures of inflation expectations. By the end of 2024, the majority of major economies' inflation rates are likely to be favorable.

o Constantly tight employment markets. At the point when national banks began fixing financial strategy just about a long time back, it was normal that this would prompt a lot higher joblessness. Not at all. Instead, major economies' labor markets continue to be surprisingly tight and robust. Additionally, in a time of high inflation, one might anticipate a significant increase in wages due to a tight labor market. Yet, wages have not risen at the same rate as inflation in the majority of major economies. From a business perspective, this indicates that labor costs are actually going down. It additionally implies that work markets are not contributing considerably to expansion.

o Consistently low interest rates on loans. Indeed, acquiring costs are up extensively over the most recent two years, to a great extent because of financial fixing as well as higher expansion. However, the fact of the matter is that borrowing costs in Europe and North America remain historically low. For instance, the yield on the US Treasury bond with a term of ten years is now 3.77 percent, which is lower than it has been almost at any time since 1980. The yield on German government bonds is the same. This is in spite of a flood in expansion. It demonstrates that financial backers are sure that expansion will get back to a lower level generally soon. It additionally mirrors the way that the world remaining parts flooded with abundance reserve funds. The cost of capital is not nearly as prohibitive for businesses that invest as many anticipated in the previous two years. In addition, it is reasonable to anticipate a decrease in borrowing costs in the upcoming year.

o Quick reversal of the disruption to the supply chain. The pandemic caused widespread disruptions in the supply chain, which were a major factor in the global rise in inflation. Many people were concerned about the time it would take to return to normal at its height. The response is that it happened rapidly. In the past year, all major indices of supply chain stress have decreased significantly to levels that are lower than pre-pandemic levels. Delivering costs are down forcefully. This is not just due to the slowdown in the global economy. In addition, it reflects the end of the pandemic, the lifting of China's COVID-19 restrictions, a shift in consumer spending patterns away from goods, and an increase in capacity.

o COVID-19's end. Prior to the development of vaccines, there was uncertainty regarding the duration of the pandemic when it first began. All things being equal, antibodies were grown more rapidly than any other time. Additionally, the most recent COVID-19 outbreak is said to be mild. I've noticed that very few people are wearing masks when I've traveled to multiple countries recently. The majority have resumed their lives.