The re-opening of China has put a downward spiral on the global economy and is good for the Australian economy but will have some negative effects on the rest of the world.
It will increase demand for commodities such as iron ore, coal, LNG and oil. This is good for rich economies, such as Australia, but not so good for other developed countries and threatens Europe.
China’s weakness last year helped Europe deal with the energy crisis caused by Russia’s response to Ukraine.
Although the rapid transition from dependence on Russian gas to other sources came at a heavy price – it paid for LNG prices and dependence on coal also meant higher prices – the prices that Europe got for its energy (at least this year) would have been much higher if China’s economy had not improved and his demand for goods decreased.
China, whose oil imports fell last year, has already increased its presence as a buyer in the commercial markets and there are predictions that will drive the price of oil, currently selling at about $US87 a barrel, through $US100 a barrel this year.
The LNG market is very complex, since Europe entered this market, so the impact on gas prices can be very important.
The Lunar New Year and the mass movement that will take place in China over the next two weeks will test the country’s health and economic systems but the decision to abandon the old policies seems to be irreversible.
Complicating any assessment is the possibility that some, if not all, of Russia’s oil and gas will be sold at sub-market prices due to the G-7’s $US60 barrel cap on Russian oil and further sanctions.
China, which was benefiting from a huge discount to global prices even before the cap was imposed last month, is expected to be the biggest buyer of the oil. India will be another major buyer of crude oil. This has an uncertain impact on the price movements of freely traded commodities.
The stability of China’s economy and society will reduce the remaining pressure that has returned and has been working close to the collapse, although it has been in the form of conflicts between China, the US and the West. information has increased.
It will also affect commodity-driven inflation in developed countries even though their central banks appear to have successfully moderated inflation.
This could mean that central bank interest rates, which have not yet peaked in major economies, could rise more than we expect or remain high for a longer period of time, which would not be good for the economy or financial markets.
In contrast, the US dollar, which rose about 20 percent from early February to late September last year to a 20-year high, has fallen about 11 percent against the currencies of its American trading partners.
Where in the past it sold inflation to other countries around the world, the weaker dollar is now helping other countries to moderate inflation and easing the pressure on their central banks to keep raising rates.
It will help especially the developing countries, where the dollar loans were exacerbating financial problems and sometimes causing economic problems or exacerbating economic problems.
It will not help, the Federal Reserve Board of the US though, after raising its policy by 4.25 percent last year, the Fed is closer to the end of monetary policy than the beginning. Whether it’s 50 basis points longer – 5 percent federal funds rate – or 75 basis points maybe, maybe, the remaining question.
There are at least two wild cards that can completely disrupt the global results.
One is that the war in Ukraine, which will continue in Europe and Russia and continue the financial commitment from the countries that support the country of Ukraine, has the possibility of unpleasant events.
Another is the debt crisis in the US which, if not resolved, will cause the US to default on its debt and chaos in the world financial markets which could have negative consequences for the world economy.
Although it was not the first time that the US did “extraordinary” to slow down the instability and previous episodes have ended without instability, the nature of the Republican minority in the House and the approval of the new speaker Kevin. McCarthy’s aggressive behavior in his party room has left investors and pundits worried that this time may be different.
Barring a shock from those sources or another unexpected development, this should be the year when the post-pandemic “unusual” pandemic emerges and when the pandemic that caused the highest inflation in decades subsides. This does not mean that the country will avoid recession but some stability is near.
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