Following developments over the last few months, which have led to an uncertain global economic outlook, we have put together a short market update looking at the impact of inflation, growth in global markets and how the ongoing banking disruption is splitting opinions on a potential global recession.
Are we heading for a global recession?
The global economic outlook is uncertain due to the March 2023 banking disruption with opinions divided on a possible global recession. China anticipates robust economic activity, while Europe faces weak growth.
In the United States, growth prospects are uncertain due to financial stability concerns and potential monetary tightening, although interest-rate increases have helped slow inflation.
GDP growth in the US market
Real GDP growth in the US remains positive, primarily supported by the resilient US labour market and a gradual decline in inflation. In April, the annual inflation rate dipped to 4.9%, while core inflation fell slightly to 5.5%, persistently outpacing the overall rate for two months.
Central banks face a delicate balancing act between managing inflation and ensuring financial stability. Rising interest rates can impact various sectors, including property markets, financial businesses, global markets, and debt sustainability.
Meanwhile, credit conditions send mixed signals, as a recent survey shows a slowdown in loan demand similar to the Global Financial Crisis. The eurozone is also witnessing tightening credit standards, raising concerns about deposit insurance, regulations and the resilience of the banking system.
The United States is grappling with the challenge of the “debt ceiling,” which limits government borrowing. Currently set at $31.4 trillion (117% of GDP), Congress must raise or waive the ceiling to prevent the Treasury from running out of cash and defaulting on payment obligations.
Uncertainty has impacted the market, with a declining one-month treasury bills and a quadrupling cost of insurance for five-year treasuries. History shows the S&P 500 typically shows an average 6.5% decline during the month before the debt-ceiling deadline.
Thankfully a bipartisan agreement has been reached. Negotiations began on May 9th, with the Republican-controlled House forcing President Biden to make concessions.
Want to find out more about global markets?
When there are any concerning changes in global market data, it’s important not to make rash decisions and consider the long-term outlook instead.