The world economy is faltering and time is ticking…

By | May 17, 2023

US Treasury Secretary Jane Yellen warned Tuesday that “time is running out” to avert disaster.

The world economy shows new signs of slowdown, as does the recovery in China Post-Covid is weakening and Germany’s struggling industrial sector threatens to push Europe into recession.
These weaknesses are becoming more apparent as the still resilient US economy comes under pressure from the looming banking crisis, as well as the Republican-Democratic dispute over the debt ceiling.
Treasury Secretary Jane Yellen warned Tuesday that “time is running out” to avert disaster.
The latest data suggests that key parts of the positive scenario for a global rebound are not playing out as expected.
The restarting Chinese economy has run out of fuel, while the mild winter in Europe is not enough to revive Germany’s industrial base.
“The growth optimism seen at the start of the year has clearly given way to realism or simply disillusionment,” according to Carsten Brzeski, ING’s global head of macroeconomics.
“China and Europe are already losing momentum again, and with everything going on in the US, the second half of the year doesn’t look any better.”

What Bloomberg Economics Says…

“A mix of economic data showed weakness in China and Europe’s steam engine, Germany.
On the other hand, the United States is resilient.
Our view is that the bad news on China’s recovery will have some momentum.
Also, Federal Reserve hikes, bank failures fueling the credit crunch, and risks associated with the debt ceiling can turn the tide…” says your economist. BloombergTom Orlik.
Chinese data released on Tuesday (May 16) showed that industrial production, retail sales and investment grew at a much slower pace than expected in April.
The youth unemployment rate jumped to 20.4%!

“Save the day”

The data confirms that China’s restart is not boosting global demand as many expected, said Hao Hong, chief economist at Grow Investment Group.
Continued weakness in the real estate sector and Chinese exporter order books will not boost confidence.
“We need the Chinese consumer to save the day,” Hong said.
In Germany, investor confidence fell for a third month, reigniting recession fears.
Institute Expectations Index ZEW it fell to -10.7 in May from 4.1 in April.
Even before that, an unexpectedly large drop in industrial production had raised concerns that Europe’s largest economy may already have slipped into recession.
He too International Monetary Fund It cut its global growth forecast last month, forecasting an expansion of 2.8% this year and 3% in 2024.
On Tuesday, the Fund warned that tight monetary policy and the adjustment to higher energy prices were weighing on Germany.
He expects economic growth “to remain close to zero in 2023” before gradually strengthening over the next three years.
While the world’s largest economy continues to defy recession forecasts (US retail sales rose in April, suggesting consumer spending is holding up), headwinds are gathering.
The bankruptcy of several regional banks makes access to credit difficult for small businesses and households.
Surveys of economists indicate a 65% probability of a recession in the next 12 months.

“Difficult Year”

As the global economy falters, central banks can provide some relief, according to Mark Zandi, chief economist at Moody’s Analytics.
Most monetary authorities are nearing the end of tightening cycles amid signs that inflation has peaked, he said, while strong labor markets and household finances will help curb growth.
“It’s going to be a tough year for the global economy,” Zandi said.
“But with reasonably good policy making by central banks, we will avoid recession.”
Investors are already worried about the outlook, and sentiment among fund managers is the most bearish this year, according to the latest Bank of America Corp. survey.
Traders are betting that a slowdown will force central banks, including the Federal Reserve, to cut interest rates later this year.
Swap markets are targeting 50 basis point cuts for December in the Fed’s benchmark interest rate, which now ranges between 5% and 5.25%.
More gloomy economic news is likely to come, with warnings from manufacturers that pressures continue to mount, said Janet Mui, head of market research at Brewin Dolphin.
“Businesses report that orders are slowing down,” he said.
“The slowdown in China’s export growth is indicative of global demand.”

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