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Risk Of Global Recession In 2023 Rises Amid Simultaneous Rate Hikes

Risk Of Global Recession In 2023 Rises Amid Simultaneous Rate Hikes

Authored by Mike Shedlock via MishTalk.com,

Central banks cut in unison…

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Risk Of Global Recession In 2023 Rises Amid Simultaneous Rate Hikes

Authored by Mike Shedlock via MishTalk.com,

Central banks cut in unison in response to Covid. They are now hiking in unison. What can go wrong?...

World Bank chart on tightening fiscal stance

Super Thursday Actions

The Wall Street Journal reports Interest-Rate Hikes Come Thick and Fast 

  • Switzerland: Raised rates by 0.75 point to 0.5%, making it one of the last central banks to exit negative territory.

  • U.K.: The Bank of England raised its key rate by 0.5 point to 2.25%, and will start selling some of its bond holdings.

  • Norway: Increased rates by 0.5 point to 2.25%.

  • Indonesia: Raised its benchmark rate by 0.5 percentage point to 4.25%.

  • Taiwan: Moved its discount rate up by 0.125 point to 1.625%.

  • The Philippines: Upped its benchmark overnight borrowing rate by half a point to 4.25%.

  • South Africa: Took the main repo rate up 0.75 point to 6.25%.

  • Japan: The Bank of Japan kept its benchmark rate at minus 0.1%. Tokyo later intervened to shore up the yen.

  • Turkey: Cut its main rate by 1 percentage point to 12%, continuing its contrarian easing campaign.

Risk of Global Recession in 2023 Rises Amid Simultaneous Rate Hikes

The World Bank says Risk of Global Recession in 2023 Rises Amid Simultaneous Rate Hikes

Central banks around the world have been raising interest rates this year with a degree of synchronicity not seen over the past five decades—a trend that is likely to continue well into next year, according to the report. Yet the currently expected trajectory of interest-rate increases and other policy actions may not be sufficient to bring global inflation back down to levels seen before the pandemic. Investors expect central banks to raise global monetary-policy rates to almost 4 percent through 2023—an increase of more than 2 percentage points over their 2021 average.

Unless supply disruptions and labor-market pressures subside, those interest-rate increases could leave the global core inflation rate (excluding energy) at about 5 percent in 2023—nearly double the five-year average before the pandemic, the study finds. To cut global inflation to a rate consistent with their targets, central banks may need to raise interest rates by an additional 2 percentage points, according to the report’s model. If this were accompanied by financial-market stress, global GDP growth would slow to 0.5 percent in 2023—a 0.4 percent contraction in per–capita terms that would meet the technical definition of a global recession.

“Global growth is slowing sharply, with further slowing likely as more countries fall into recession. My deep concern is that these trends will persist, with long-lasting consequences that are devastating for people in emerging market and developing economies,” said World Bank Group President David Malpass. “To achieve low inflation rates, currency stability and faster growth, policymakers could shift their focus from reducing consumption to boosting production. Policies should seek to generate additional investment and improve productivity and capital allocation, which are critical for growth and poverty reduction.”

The study highlights the unusually fraught circumstances under which central banks are fighting inflation today. Several historical indicators of global recessions are already flashing warnings. The global economy is now in its steepest slowdown following a post-recession recovery since 1970. Global consumer confidence has already suffered a much sharper decline than in the run-up to previous global recessions. The world’s three largest economies—the United States, China, and the euro area—have been slowing sharply. Under the circumstances, even a moderate hit to the global economy over the next year could tip it into recession.

Is a Global Recession Imminent? 

The World Bank Report ponders the question Is a Global Recession Imminent? 

  • Kenneth Rogoff, April 26, 2022: The odds of recession in Europe, the United States, and China are significant and increasing, and a collapse in one region will raise the odds of collapse in the others… The risks of a global recession trifecta are rising by the day.

  • Jeffrey Frankel, August 25, 2022: A global recession is entirely avoidable… Even by laxer criteria like GDP growth below 2.5 percent, global recession is very far from inevitable. 

  • Anne O. Krueger, August 25, 2022: Whether the balance of risks is toward inflation, recession, or a smooth landing from current turbulence depends on unknowns such as the duration of the Ukraine war… …. But a global recession is certainly not inevitable. 

  • Jim O’Neill, August 25, 2022: If these two economies (the US and China) are both in their respective versions of recession, then that will virtually guarantee a global downturn. Given their current weaknesses and challenges, such a scenario is quite possible… But I am less convinced of this than I probably was a few months ago… 

  • Stephen S. Roach, August 25, 2022: Notwithstanding the pitfalls of forecasting anything these days, my cracked and worn crystal ball sees a global recession occurring in the next year…. Collectively, Europe, the US, and China make up about half of world GDP on a purchasing-power-parity basis. With no other economy able to fill the void, I am afraid a global recession does indeed appear inevitable

Global Recession Definition

There is no consensus on the definition of a global recession. 

Some economists suggest anything under 2.5 percent growth, some use per-capita growth, some mean declining real GDP. 

Fantasyland Projections vs the Inevitable

Jeffrey Frankel is in pure Fantasyland believing 2.5 percent growth is possible. Roach is undoubtedly correct.

China is in the midst of an imploding property bubble. Europe will have a severe recession due to a war-related energy crisis, and the US consumer is struggling under the weight of Fed rate hikes and a housing crash.

First we had unprecedented fiscal and monetary stimulus. Now we have unprecedented monetary tightening but still loose fiscal conditions. 

The Real Question

In general, central bankers shifted from the stern to the bow and back again, in unprecedented amounts, hoping first to cause inflation, now to stop it.

When does this central bank massive flip-flopping cause a global currency crisis?

That's the real question because a major global recession is inevitable. 

Meanwhile, we have wildly optimistic Fed forecasts. 

Examining Fed GDP Projections For 2022 and 2023

Please consider Wildly Optimistic Forecasts: Examining Fed GDP Projections For 2022 and 2023

100% of Fed participants expect no less than an all-time GDP high in the 4th quarter! The median expectation is greater.

The Fed is not making predictions, the Fed is making Fantasyland wishes.

What an incredulous hoot.

*  *  *

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Tyler Durden Fri, 09/23/2022 - 15:25

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Economics

Wyshbox Life Insurance study shows how the pandemic, inflation and looming recession has led to women worrying about their financial future.

Wyshbox Life Insurance study shows how the pandemic, inflation and looming recession has led to women worrying about their financial future.
PR Newswire
MILWAUKEE, Sept. 29, 2022

Through interviews and surveys of over 400 working women between the …

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Wyshbox Life Insurance study shows how the pandemic, inflation and looming recession has led to women worrying about their financial future.

PR Newswire

Through interviews and surveys of over 400 working women between the ages 20-45 years, the numbers aren't good for how women feel about their financial future.

MILWAUKEE, Sept. 29, 2022 /PRNewswire/ -- It's no surprise that women have had to deal with unprecedented volatility over the past few years. The (financially) unprotected sex by Wyshbox Life Insurance includes interviews and surveys of over 400 women and takes a deep dive into how much of a negative financial impact the pandemic, inflation and fears of a potential recession in the future has had on women of different ages and cultural backgrounds. We've discovered that 83% of women surveyed worry about high inflation in the future, which has increased their household expenses and has had a negative effect on their purchasing power. Shockingly, the biggest worry for women of color (35% surveyed) is that their wages are not keeping pace with rising expenses, a worry not shared as strongly by caucasian women.1

New study shows how the pandemic, inflation and looming recession has women worrying about their financial future.

Found on our website at www.wyshbox.com/women, The (financially) unprotected sex white paper not only seeks to understand the emotional and financial burdens and worries of women of different racial backgrounds, but also their employment and childcare struggles when compared to men.

"An eye-opening learning we found was that 30% of caucasian women versus 42% of women of color had to quit their job over the pandemic," says Hetal Karani, Senior Strategist who led the research effort for Wyshbox. Those who had quit the workforce cited pursuing higher education opportunities, limited childcare availability and a lack of alternative schooling options as their main reason to exit the labor market—in addition to not wanting to risk their family's health after being denied remote working options by their employer.1 

Coupled with the importance of a mother's salary and a steep rise in dual income households, we found these learnings particularly troubling. "More than 70% percent of households with children under 18 years rely on the woman's salary, and 40% of moms are the primary breadwinner for the home,"1 added Hetal, "yet our emphasis on the importance of financial planning for the well being of women and their families has remained stagnant"

And when it comes to protecting their future, 70% of mothers said they were worried about what would happen to their families if they passed away.2 So it was no surprise that Wyshbox Life Insurance saw an unprecedented level of women applying for Life Insurance, well above the historical average. Applicants were looking to protect their children and spouse should they lose their salary unexpectedly, cover their mortgages to protect their family from losing their home pay out to a college tuition that they have been saving for.

Read The (Financially) Unprotected Sex white paper for insights and actionable takeaways for not only the insurtech industry, but for anyone looking to understand how women are taking on the new challenges in front of them.

About Wyshbox

Wyshbox life insurance is there to help make sure that life post-you is everything you want it to be. Wyshbox provides term life insurance tailored to everyone's specific needs with policies that can help take care of your family, kids, pets, friends, funeral arrangements, and so much more. It takes less than 10 minutes, is 100% online, and plans start at just $9 per month.

Media Contact:
media@wyshbox.com

Copyright © 2022 Wysh Life and Health Insurance Company
*Disclosures at: www.wyshbox.com/ad-disclosures 

1 Wyshbox Life Insurance. Quantitative Survey "Women during COVID and Recession". 400 participants. August 8, 2022
2 Wyshbox Life Insurance. Quantitative Survey "Thematic Survey". 1200 participants. November 2021

View original content to download multimedia:https://www.prnewswire.com/news-releases/wyshbox-life-insurance-study-shows-how-the-pandemic-inflation-and-looming-recession-has-led-to-women-worrying-about-their-financial-future-301636835.html

SOURCE Wyshbox

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Economics

EasyJet share price has collapsed by 53% in 2022. Is it a buy?

The EasyJet (LON: EZJ) share price has hit turbulence as concerns about demand and soaring costs remain. It dropped to a low of 293p, which was the lowest…

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The EasyJet (LON: EZJ) share price has hit turbulence as concerns about demand and soaring costs remain. It dropped to a low of 293p, which was the lowest level since November 2011. It has plummeted by more than 82% from its all-time high, giving it a market cap of more than 2.5 billion pounds.

Is EasyJet a good buy?

EasyJet is a leading regional airline that operates mostly in Europe. It has hundreds of aircraft and thousands of employees. In 2021, the firm’s revenue jumped to more than 1.49 billion pounds, which was a strong recovery from what it made in the previous year.

EasyJet’s business is doing well as demand for flights rises. In the most recent results, the firm said that forward bookings for Q3 were 76% sold and 36% sold for Q4. For some destinations, bookings have been much higher than before the pandemic.

EasyJet’s business made more than 1.75 billion in revenue in the first half of the year. This happened as passenger revenue rose to 1.15 billion while ancillary revenue jumped to 603 million pounds. The firm managed to make a loss before tax of more than 114 million pounds. It attributed that loss to higher costs and forex conversions.

As I wrote on this article on IAG, EasyJet share price has collapsed as investors worry about the soaring cost of doing business. Besides, jet fuel and wages have jumped sharply in the past few months. Also, analysts and investors are concerned about flight cancellations in its key markets.

Still, there is are two key catalysts for EasyJet. For one, as the stock collapses, it could become a viable acquisition target. In 2021, the management rejected a relatively attractive bid from Wizz Air. Another bid could happen if the stock continues tumbling.

Further, the company could do well as the aviation industry stabilizes in the coming months. A key challenge is that confidence in Europe and the UK.

EasyJet share price forecast

EasyJet share price

The daily chart shows that the EasyJet stock price has been in a strong bearish trend in the past few months. During this time, the stock has tumbled below all moving averages. It has also formed what looks like a falling wedge pattern, which is usually a bullish sign.

The Relative Strength Index (RSI) has dropped below the oversold level while the Awesome Oscillator has moved below the neutral point.

Therefore, in the near term, the stock will likely continue falling as sellers target the support at 270p. In the long-term, however, the shares will likely rebound as the falling wedge reaches its confluence level.

The post EasyJet share price has collapsed by 53% in 2022. Is it a buy? appeared first on Invezz.

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Economics

August data shows UK automotive sector heading for a “cliff-edge” in 2023

With an all-out macroeconomic storm brewing in the UK, the Bank of England (BoE) has been forced to intervene in the tumultuous gilt markets, particularly…

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With an all-out macroeconomic storm brewing in the UK, the Bank of England (BoE) has been forced to intervene in the tumultuous gilt markets, particularly towards the tail end of the yield curve (details of which were reported on Invezz here).

Car manufacturing is a key industry in the UK. Recently, it registered a turnover of roughly £67 billion, provided direct employment to 182,000 people, and a total of nearly 800,000 jobs across the entire automotive supply chain, while contributing to 10% of exports.

Just after midnight GMT, data on fresh car production for the month of August was released by the Society of Motor Manufacturers and Traders Limited (SMMT).

Strong annual growth but monthly decline

Car production in the UK surged 34% year-over-year settling at just under 50,000 units. This marked the fourth consecutive month of positive growth on an annual basis.

However, twelve months ago, production was heavily dampened by a plethora of supply chain bottlenecks, work stoppages on account of the pandemic, and a worldwide shortage of microchips. The August 2021 output of 37,246 units was the lowest recorded August volume since way back in 1956.

Although the improvement in output is a good sign, equally it is on the back of a heavily depressed performance.

Source: SMMT

To place the latest data in its proper context, production is still 45.9% below August 2019 levels of 92,158 units, showing just how far adrift the industry is from the pre-pandemic period.

Since July, production in the sector fell 14%.

The fact that the UK is facing a deep economic malaise becomes even more evident when we look at full-year numbers for 2020 and 2021.

In 2020, total output came in at 920,928 units, while 2021 was even lower at 859,575. The last time that the UK automotive sector produced less than one million cars in a calendar year was 1986.  

Unfortunately, 2022 has seen only 511,106 units produced thus far, a 13.3% decline compared to January to August 2021.

In contrast, the 5-year pre-pandemic average for January to August output from 2014 – 2019 stands well above this mark at 1,030,527 units.

With car manufacturers tending to pass price rises on to consumers, demand was dampened by surging costs of semiconductors, logistics and raw materials.

The SMMT noted,

The sector is now on course to produce fewer than a million cars for the third consecutive year.

Ian Henry, managing director of AutoAnalysis concurred with the SMMT’s analysis,

It is expected that by the end of this year car production will reach 825,000, compared to 850,000 a year ago, but that’s 35% down on 2019 and a whopping 50% on the high figure of 2017.

Sector challenges

Other than the obvious fact that the UK’s economic atmosphere is in hot water, the automotive industry (including component manufacturers) has been struggling to stave off the high energy costs of doing business.

In a survey, 69% of respondents flagged energy costs as a key concern. Estimates suggest that the sector’s collective energy expenditure has gone up by 33% in the last 12 months reaching over £300 million, forcing several operations to become unviable.

Although the government enacted measures to cap the price of energy and ease obstacles to additional production, Mike Hawes, the CEO of SMMT, said,

This is a short-term fix, however, and to avoid a cliff-edge in six months’ time, it must be backed by a full package of measures that will sustain the sector.

Due to the meteoric rise in costs across the automotive supply chain, 13% of respondents were cutting shifts, 9% chose to downsize their workforce and 41% postponed further investments.

Bleak outlook

Uncertainties around Brexit and the EU trade deal are yet to be resolved.

Moreover, the energy crisis is poised to get even more acute unless Russia withdraws from the conflict, or international leaders ease restrictions on Moscow. Last week, I discussed the evolving energy crisis here

With global central banks expected to tighten till at least the end of the year, demand is likely to be squeezed further pressurizing British car manufacturers.

Electric vehicles made up 71% of car exports from the UK in August, but robust growth in the sector looks challenging in the near term, in the absence of widespread charging infrastructure, high electricity prices and globally low consumer confidence.

Although energy subsidies could provide some relief in the immediate future, the industry will remain in dire straits while investments stay low and the shortage in human capital persists, particularly amid the push for EVs.

Given the prevailing macroeconomic environment, and severe market backlash to Truss’s mini-budget (which I discussed in an earlier article), the sector is unlikely to turn the corner any time soon.

The post August data shows UK automotive sector heading for a “cliff-edge” in 2023 appeared first on Invezz.

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