From the bloody war in Ukraine to the grim legacy of Covid and the terrible rollback of inflation (a dragon’s idea long dead), 2022 saw the world drifting in a typhoon of malaise. And despite all the forecasts for the New Year by banks, economic bodies, fund managers, etc. , this tide will continue, regardless of the calendar.
However, as we gaze nervously into the undiscovered country of 2023, it’s surely worth considering which “event risks” are likely to loom the largest on an unfortunately wide horizon of grim possibilities.
Here are the top three to look out for in early 2023. . .
In a world torn apart by actual and potential wars, it might seem insensitive or naïve to put an economic issue at the most sensible place on the list, but we’re not going to apologize.
The International Monetary Fund estimates that global customer value inflation may have reached just 8. 8% this year. If so, it will be the highest number since 1996. And that’s bad enough, but in some places it’s much worse. The United Kingdom and the European Union have noted double-digit levels of inflation, reaching multi-decade highs.
Of course, the financial government has reacted. The U. S. Federal ReserveIt has raised its official interest rates through four percentage issues and a fourth this year. As it turns out, they will most likely increase them even more. Other central banks have followed suit.
There are very tentative signs that the medicine is working and that prices may begin to stabilize and even fall. The Fed has publicly hoped so, as has the Bank of England.
We had hoped that those hopes would be justified.
Cheap cash and low, if not negative, borrowing prices have been the norm for at least twenty years. Many corporate and private borrowers probably wouldn’t be able to cope with a rate hike. hikes already underway.
Thus, the specter of a terrible credit crunch hangs over a global economy awash in debt and in search of growth. Whatever happens, recessions may hit the West today. Persistent inflation, and the even higher interest rates it would demand, will only make matters worse. The specific architecture of the euro makes it particularly vulnerable. Stronger member states such as Germany will demand higher interest rates than more indebted partners such as Spain and Italy can afford.
But no place is immune.
Peace in Ukraine would certainly help, but even that would be an immediate panacea.
The worlds’ new-found nervous enthusiasm for the monthly inflation figures will show no sign of waning as 2023 gets going.
Buffeted by an effective permanent lockdown and a draconian policy of isolating all Covid infections, infrequent and widespread public protests, the Chinese government has waived some of its strictest anti-virus measures.
Infected people are no longer forced into Spartan state detention centers. Travel has become less difficult and freer across the country. However, even those modest measures come at a price. China’s domestic and external health authorities have expressed concern about the lack of “herd immunity,” due to prolonged lockdowns, as well as low vaccination rates among vulnerable older people. Concerns about the efficacy of locally produced vaccines compared to Western products complete this grim picture.
With infection rates in the thousands, it’s no surprise that China’s reaction to Covid is the most sensible on many analysts’ list of considerations for 2023.
After all, China’s economy has been an engine of global expansion for decades, developing much faster than its Western rivals and absorbing raw materials at unprecedented rates. However, China’s debt has grown almost as impressively as its economy, and that will impede economic functioning. sobering consequences.
In fact, analysts S
The deduction is pretty transparent and serious: the world probably won’t return to anything resembling “pre-Covid normal” until China does. And China has rarely reached that point yet.
If Russian President Vladimir Putin really launched his attack on Ukraine in February 2022, hoping for a quick and lasting victory, he obviously miscalculated. The unity of the democratic states that opposed him because of his “special military operation” was perhaps one of the few bright spots. Even Putin’s own old allies, such as China and India, have failed to offer the kind of support that was given to Russia in the past.
That said, it is unlikely that any other year will replace the center of the Kremlin, despite the unpopular mobilization of Russian army reservists this year. Putin remains defiant and now seems determined to blame the West for forcing its hand on its close neighbor. If Russia continues to view Western arms shipments to Ukraine as valid targets, there will remain the option of an accidental direct confrontation between Russia and NATO.
The war presents a number of interconnected risks, with perhaps the most serious of those the threat that Russia might deploy a tactical nuclear weapon if Ukrainian forces appear to be making headway towards Crimea. Russia may yet play for time, hoping that splits emerge in Western unity and that life without Russian gas this winter will see support for Ukraine in Europe start to ebb. There’s little sign of that so far, but the conflict remains a huge potential risk event, one that of course feeds back to the inflation picture via a number of channels, notably energy and commodity prices, that a still fragile global economy doesn’t need.
— via David Cottle for DailyFX
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