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Opinion | Economic recovery, friendshoring and other trends set to dominate in 2023
- Optimism is starting to shine through as China pivots away from ‘zero Covid’, inflation eases and interest rate increases abate. Worrying trends such as ageing populations and high healthcare and energy costs remain, but there is reason to believe this optimism is more than wishful thinking
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Optimism is breaking through the storm as fierce headwinds abate. Is it wishful thinking? A year ago, inflation raged worldwide. The US Federal Reserve led central banks in abandoning an era of easy money by aggressively raising interest rates while curtailing asset purchases. They had pumped so much liquidity into markets that rates turned negative.
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The plot darkened when Russia invaded Ukraine on February 24. The dire consequences have been roiling grain and energy markets ever since while reordering superpowers’ geopolitical priorities.
Meanwhile, Beijing’s “zero-Covid” policy accelerated the slowdown in China’s maturing economy, already beleaguered by the real estate bubble, collapsing demand for imports, trade restraints on its exports and local governments’ US$8 trillion debt burden. Earlier this month, Beijing abandoned its harsh pandemic policy. Infection rates and deaths are rising, but the lack of data makes it hard to assess the economic perils ahead.
Now, global inflation shows signs of waning. Central banks are telegraphing smaller rate increases through mid-2023 unless a “hard landing” forces a reversal. The Fed’s recent 50-basis-point increase illustrates the retreat.
But inflation is wily, and the US economy remains strong. Equity traders are skittish but bond dealers less so, and US Treasury and corporate bond yields have fallen since late-October highs.
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A day doesn’t seem to pass without another forecaster revising upwards their outlook. A few months ago, their grim scenarios predicted an inevitable recession worldwide, especially for a Europe crippled after Russia choked off gas supplies. Central banks, however, aren’t persuaded.
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