Another interesting week for the global markets and economy. There were many important news but the one, I believe, is a sign of things to come is that the World Bank has lowered estimates for global growth. The Bank cut its growth estimates to 2.9 percent (2022) from 5.7 percent in 2021. Previously it predicted a growth of 4.1 percent (in January). One thing that I have continued to highlight is the asymmetrical impact of such devlopments on emerging markets that will see their growth fall almost 50 percent i.e. from 6.6 percent in 2021 to 3.4 percent in 2022. This is also below the average of 4.8 percent maintained between 2011 to 2019. Importantly, and as I have been trying to highlight, the World Bank’s report also compared the current situation to 1970s Stagflation in what is a “first systematic” comparison.
Stagflationary pressures, as we have continued to mention on the show as well, continue to be the most important challenge for global economic growth moviing forward. However, other headwinds remain. Look at, for instance, China, which is giving mixed signals. Reecntly after the strict Covid measures started to ease off, the country re-imposed some new lockdown measures in Shanghai. However, China’s exports in May grew by 16.9 percent compared to last year. Crude oil imports also jumped 11.9 percent in May YoY basis but exports of refined oil products was 40 percent in May versus last year.
Oil prices have recently slowed its bullish ascent as well as US CPI figures weighed down on energy demand by the consumers. Prices in the U.S. increased the most in 40 years sparking fears that the Fed will be more aggressive in hiking interest rates. Such a move will hamper the buying power of emerging markets and developing countries effecting the long term demand of oil. Speaking of inflation, ECB has also ended its QE program (long anticipated by PVN and many others too).
Global food prices also continue to be under pressure (registering only a slight, unnoticeable change). This has continued to be challenging for developing countries or those dependent on food imports. Wheat prices seems to not catch a breath and grains prices are still elevated.
If you notice all the news is an extension of a few concentrated developments (COVID19, Russian Ukrainian War, Rising interest rates) and this trend will continue to hold for some months. With the hope that things get better, I wish everyone a great weekend ahead.
