A Shallow Recession?

Sebastien Callebaut -

Economic Indicators Are Pointing In A Better Direction

Recently, the fast recovery of China's economy, the drop in gas prices in Europe, and the slowing of inflation in the US are giving hope that the global recession may not be as bad as feared just a few weeks ago. Despite the continued warning signs from last year's increase in inflation and interest rates, the strong growth in the world's markets is indicating a return of optimism.

  • The International Monetary Fund has even increased its prediction for global growth in 2023, and the once inevitable European recession is now not seen as such a big concern
  • Citi, the banking group, now estimates only a 30% chance of a global recession this year, down from their previous prediction of 50% in the latter half of last year

Good And Bad News

In January, employers created over half a million jobs and the housing market appeared to be stabilising or even improving. Many economists on Wall Street see a reduced chance of downturn in the economy this year. After assessing the possibility of a "soft landing" where the economy slows but doesn't fall into a severe recession, experts are now considering the possibility that the economy will simply continue to grow.

  • However, not all the news is positive. The manufacturing industry is still struggling, consumer spending has decreased, and some analysts believe a mild recession is still likely to occur this year
  • Despite this, there have been enough positive surprises that Federal Reserve officials seem to believe the nation will avoid a severe downturn

This resilience could become a challenge if the job market and growth continue to thrive, leading to inflation that central bankers are trying to slow down. This could eventually force the Fed to take more drastic actions and may usher the economy into a recession.

A Tricky Balancing Act

The central bank has recently slowed down its pace of increasing interest rates, which has helped markets to calm down. This has caused mortgage rates to decrease slightly.

  • There's also been a recent increase in mortgage applications, new home sales are back to pre-pandemic levels, and used car prices, which were decreasing, are now rising again
  • Although there has been a recent decrease in retail sales and household spending, there are some positive signs that consumer demand could pick up again in 2023

Still, this could have a significant negative impact on the Federal Reserve's efforts to control inflation.

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products. Please note that the writer of this article is not registered as a financial advisor.

Credits

Photo by Obi - @pixel7propix on Unsplash.