The First Half Of 2023 Looks Like It Will Be Fairly Disinflationary For The Global Economy
Aa
Share
The Global Economic Profile
How do all these factors play out for the global trends that drive markets? The world’s two largest economies appear to be on completely opposite cycles: one stimulating and gunning for growth; the other very restrictive and prepared to incur a recession for the sake of reducing inflation.
Sequencing will be important. Most leading indicators predict a softening in U.S. economic trends well into the year, based on what the Fed has already done, and further if the Fed continues to tighten. If inflation falls as fast as we suspect, and the Fed pauses, the growth slowdown would be more shallow but still slower for most of the year.
In China, signs indicate that the pandemic may have already peaked across a range of big cities. How people react is unknown, particularly with another wave expected in May/ June. After years of indoctrination about the hazards of this virus, it may take a while to regain confidence. The measures to stimulate the economy are only beginning, and the scale of support required to turn the property sector around will have to be substantial.
Netting it out, the first half of 2023 looks like it will be fairly disinflationary for the global economy, with spending and growth looking quite weak over the first six months of the year. Markets may front run the trends discussed here, but actual traction in the real economy, particularly in China, may not develop much momentum before the second half of the year.
Read next: Starbucks Revenues Are High Despite High Costs| FXMAG.COM
Definitions
Deflation refers to a persistent decrease in the level of consumer prices or a persistent increase in the purchasing power of money.
Disinflation is a temporary slowing of the pace of price inflation and is used to describe instances when the inflation rate has reduced marginally over the short term.
Modern Monetary Theory (MMT), not widely accepted, has the following basic attributes: A government that prints and borrows in its own currency cannot be forced to default, since it can always create money to pay creditors. New money can also pay for government spending; tax revenues are unnecessary. Governments, furthermore, should use their budgets to manage demand and maintain full employment (tasks now assigned to monetary policy, set by central banks). The main constraint on government spending is not the mood of the bond market, but the availability of underused resources, like jobless workers.
Author: Francis A. Scotland, Director of Global Macro Research
