Health Check: Global Economy

More people seem to be joining the chorus of an upcoming recession. We, at PVN, have continued to provide weekly updates on various global economic indicators especially through the ECON show and Monday Macro View . From US ISM manufacturing index to China's Caixin and new export orders - all of these indicators are showing downward trends. In this article, I will continue the trend and highlight some latest data points that point to an overall slowdown in global economy.

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https://www.youtube.com/watch?v=bkK2cJEPLRc

Consumers are not doing good as sticky inflation and high interest rates continue to eat away their purchasing power which are then further reflected in muted industrial activity such as in the U.S.

This slowdown in industry is also mirrored by a fall in electricity sales to industrial consumers "in six of seven months between July 2022 and January 2023 compared with a year earlier" (source: John Kemp's Newsletter).

Another VERY important indicator is the continuous fall in Money Supply and the chart below shows the biggest drop in M2 since Great Depression.

Source: Seeking Alpha

Recently, World Bank has expressed concerns about the high levels of debt in the United States and the impact it may have on the global economy, which is already experiencing a slowdown. The World Bank's president, David Malpass, shared his concern that the U.S. debt issue could create "spillovers" that might impact other countries and regions, particularly those with weaker economies.

The IMF and the World Bank in their latest meeting predicted that global economic growth will slow further. In April, the World Bank projected that the global gross domestic product (GDP) growth would drop below 2% this year, recover to 3% in 2024, and then decline again to 2.2% by 2030. These numbers represent a considerable decline from the 3.5% average of 2000s. Declines in investment and productivity would be the main contributors to a world-wide slowdown. The IMF’s latest World Economic Outlook also warned of historically low growth, increased financial risks and a “rocky recovery” ahead. The current wave of monetary tightening has slowed inflation but also popped several asset bubbles, triggering an interest-rate risk shock that wounded borrowers and fragile financial institutions. In one extreme (but plausible) scenario examined by the authors, higher interest rates and credit-supply shocks will pull down global growth to 1% this year.

The OECD's forecast for the global economy was somewhat better than that of the IMF. They expect the global economy to expand by 2.6% in the current year and 2.9% in 2024, primarily due to China and India's post-pandemic recoveries, which are expected to balance out slower growth in the United States, Europe, and Japan. Meanwhile, former U.S. Treasury Secretary Lawrence Summers believes there is a 70% possibility of a recession in the United States due to the rising tension between China and America.

There was a very interesting research according to Ned Davis Research, and they had some interesting charts showing a global economy heading towards recession. Sharing them below. "We are probably not yet in recession, but I can see many signs warning me of the risk the clock is ticking toward one," Ned Davis Research founder Ned Davis said.