The past two weeks on the global financial markets have been brutal. Monday was no exception, across the US, Asia and Europe.
Of course, the stock market is not the economy. But in this case, the stock markets look at the economy and don’t like what they see.
The British pound hit a record low against the US dollar. Also, energy markets are pointing to an impending recession as oil prices have fallen, which is a sign of weak demand.
And all are dealing with the aftermath of the Russian war in Ukraine. The Organization for Economic Co-operation and Development said Monday the conflict will cost the global economy $2.2 trillion in lost output.
Overall, the global economy has emerged surprisingly well from the first two years of the pandemic, taking all risks into account.
But supply chain problems dragged on, Russia invaded Ukraine, inflation rose and soon the global economy was in trouble, said Jacob Kirkegaard of the Peterson Institute for International Economics.
“I think it’s the old adage for financial markets, ‘Disaster rarely comes alone,'” Kirkegaard said. “I wouldn’t call it a perfect storm, but it’s getting mighty windy out there.”
Global growth is at risk for a variety of reasons. First, there are those aggressive rate hikes aimed at dampening demand to keep inflation in check, led by the US Federal Reserve and followed by central banks around the world.
“Interest rates are rising for the first time in 15, in some cases 20 years, with falls in many stock markets and a type of risky asset that typically relies on borrowed money,” Kirkegaard said.
Then add a large dose of international strife. “The ongoing geopolitical shock and uncertainty of the war in Ukraine, the re-emergence of the threat of nuclear war, right? Not the headlines people would like.”
Especially in Europe, where the headlines are that Russia is halting natural gas supplies and prices are going through the roof.
Meanwhile, over in Asia, China’s economy is in trouble. The US is likely to weather the global economic storm better than our main trading partners, according to Commonwealth Financial Network’s Brad McMillan.
“We are by far the least affected by global problems,” he said. “Certainly we’re not independent of the world, but we’re much, much less exposed than, say, Europe and the Far East.”
Just look at the energy, McMillan said. We produce most of it ourselves. In Europe and Asia, they depend on Russia and the rest of the world.
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