Even the optimistis are starting to throw in the towel.
The World Bank, or more accurately, the economists at that institution, are starting to get worried. For those who follow my work, this should come as no surprise. For over a year we have discussed how the economy isn't very rosy and things were going to take a turn for the worse.
Now we have the World Bank restating their forecasts, and not in a positive direction.
2023 global growth to slow to 1.7% from 3% expected six months ago
That is quite a hit to the forecasts. It seems they were mistakenly optimistic about the prospects for 2023 around the middle of last year.
Amazing what 6 months can do.
Global Economy Going To Get Worse
The World Bank, along with many other such organizations, tout how well things are going. We have the Federal Reserve telling us how strong the US economy along with the job market is. For this reason, Jerome Powell is going to keep raising interest rates until inflation is tamed.
In fact, this is a reason that World Bank used for the lowering of the forecast.
Global growth is slowing sharply in the face of elevated inflation, higher interest rates, reduced investment, and disruptions caused by Russia’s invasion of Ukraine, according to the World Bank’s latest Global Economic Prospects report.
What is ironic is that the Russia situation was known to these people in June. Why didn't they take that into account then>
As for the others, none of this came from nowhere. In fact, we talked about throughout much of 2022.
Now we are in the situation where some are starting to wake up to the fact the global economy is suffering. Should we be surprised they are only now turning in?
2023: The Story Will Be Deflation
Once we have people like this figuring out what is taking place, that usually means we are further into than most realize.
Unfortunately, the reality for 2023 is likely to be deflation. The switch from inflation to this is often fast (and fierce). It is a painful process as corporations all over the world start to adjust. This usually starts with cutting costs, i.e. jobs.
Recession, whether technical or not, is painful. For some reason, most seem to have the idea inflation bad, deflation good. This is not the case. When economies go into deflationary spirals, especially due to the business cycle, it is a bloodbath. Yes a decline in prices is good expect when it comes with the same to assets, loss of jobs, and defaults.
We are already seeing the signs in the automobile industry. This is one of the major components to the economy and many who are in the business are sharing how rough times are already upon us.
Growth in advanced economies is projected to slow from 2.5% in 2022 to 0.5% in 2023. Over the past two decades, slowdowns of this scale have foreshadowed a global recession
Advanced economies will grow at .5%?
Just think of the economic damage that will be done dropping the developed world from 2.5% in 2022 to .5% in 2023. This is going to be a bloodbath of serious proportions.
Of course, this is an average. There are going to be some countries which will enter negative territory. I would suggest watching the Eurozone on this one.
The outlook for 2024 isn't much better:
By the end of 2024, GDP levels in emerging and developing economies will be roughly 6% below levels expected before the pandemic.
Here is the summary of the report.
Yield Curve
Irving Fisher, the noted economist, make the observation that the long-end of the yield curve forecasts growth and inflation expectations.
What did we talk about throughout 2022? How many times did we mention the yield curve and that both LIBOR and US Treasury curves were screaming that growth and inflation was going to crash?
Now we have the World Bank revising their projections for the developed world to 0.5%. It seems that we had some insight into this for more than 9 months.
A sick looking yield curve is never good for the ecomonic prospects going forward. For the past year, we were told the largest, most liquid market in the world completely disagreed with the Fed. The price increases were not due to money printing but a supply shock. Hence, the Fed didn't cause the problem and they certainly were not going to fix it.
Yet here we are. The World Bank is telling us things are getting pretty crappy and we will likely have Powell showing up sharing how they intend to keep raising interest rates throughout the first half of the year.
Insantiy at its best.
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