Investors beware, the global economy is flying into turbulence and with a near-constant stream of bad news from around the world, this is the time to be cautious with your money. I have curated the Top 5 Trends that can impact the global economy this month and beyond, which provide insights into what can affect your investments. More so, when everyone and their dog is preparing for a recession, it makes sense to load up and buckle up for the wild ride ahead.
All Hell is About to Break Loose, with Central Bank Taper and Tightening Impacting The Global Economy, which was on Steroids Thanks to The Printing Presses.
First, let us start with the Central Bank’s taper and tightening policies. For a long time, global investors have been used to “ultra-cheap” money, thanks to near-zero interest rates by Central Banks. While initially, low-interest rates prevailed as a means of spurring growth, many investors took advantage of the easy money to invest in Emerging Markets in the developing world, especially in Tech startups and indeed, on whatever caught their fancy. With so much liquidity sloshing in the system, it is no wonder that many of the startups became Unicorns or those with Billion dollar valuations. Well! The party is over and much like the Dotcom crash in the 2000s, history is repeating itself with the ongoing bursting of the Unicorn bubble.
The Global Economy has been on “steroids” for much of the last two decades, more so in the aftermath of the pandemic, as Central Banks flooded economies worldwide with money so as to kickstart growth and “support” both macro and micro-segments, including households to make up for the loss of incomes. This led to asset bubbles and overpriced stocks, which are now facing a “moment of reckoning” as they trend downward towards “realistic” valuations. Investors beware!! As the era of cheap money is drawing to a close, and more so for the TikTok generation who invested in themselves and became part of the Creator Economy, the ongoing crypto and digital stocks are certainly a cause for concern.
Immortal Xi, and the Visible and Invisible Chinese Slowdown Impacting Supply Chains
Next, China’s visible and invisible slowdown is beginning to take a toll on the Global Economy. With its draconian Zero Covid policy-induced lockdowns, there has been a noticeable slowdown as can be seen by the latest growth figures. Moreover, with Xi Jinping attempting to “immortalize” himself by seeking a record third term, a wary West ponders on the best way to “contain” a belligerent and aggressive China under Xi. In addition, China’s “troubled” real estate sector is on the verge of a “slow-motion” implosion as the unresolved issues surrounding Evergrande and other property developers threaten to drag down the Chinese economy.
In the tightly interconnected global economy, what happens in China does not stay in China as can be seen from the severe supply chain bottlenecks arising out of the production halts and the lockdowns in China, that are causing havoc with everything from holiday shopping to inflation, as the supply side contractions raise prices and lead to scarcities of essential goods and raw materials for a range of items from Smartphones to Sugar. Having said that, there has been another noticeable trend, partly due to Covid and more due to the Russian invasion wherein many global investors, including the Davos crowd, think that globalization is in decline. While this can be both good and bad news, depending on one’s position, it would certainly mean much “disruption” over the next few months as corporates shift to nearshoring and relocation of their supply chains.
Has Vladimir Putin Backed Russia Into a Corner?? Why an Almost Certain Russian Default is Spooking Europeans and Shutting Russia Out of the Global Economy
Talking about the Russian invasion, a largely unreported event impacting investors this month and beyond is the “almost certain” Russian default, which is leading the global economy towards a 1991 scenario, when the collapse of the erstwhile Soviet Union led to much chaos and confusion worldwide. Though experts assure us that the situation is different, this time around, with the global economy largely “insulated” from any Russian default, there are always the “unknowns” that can cause havoc and more so for the Europeans, who for long have invested heavily in Russia. Indeed, as can be seen from the lack of “unity” among the Europeans where it concerns Russia, any default by the latter, can have repercussions on the continent.
The Developing World Is Four Meals From Anarchy and India Too Beware, As Record Inflation and The Jobs Crisis Make a Rerun of the 1990s Possible
Perhaps the trend with the most “bang” is the ongoing debt crisis in the developing world, with Srilanka being the first “domino” to fall. With a reported dozen odd countries in the Third World on the verge of a similar crisis, multilateral institutions like the World Bank and IMF would have their hands full dealing with the “four meals from anarchy” scenes playing out across Africa and Asia. While India is sitting tight, smirking at a neighbourhood in crisis and counting its blessings, there are enough signs that the Indian Economy is beginning to feel the heat from the flames singing among its immediate neighbours as well as the broader peers in the global economy. This can be seen from the “slowdown” of the last three quarters of FY 2022 as reported by the government.
Moreover, despite being feted as the “fastest-growing” major economy, India cannot rest easy as record inflation and a brewing commodity crisis, which led to its “U-turn” on wheat and sugar exports last month, threaten the fragile recovery. Moreover, the pandemic has led to a massive jobs crisis, more so for the youth and women, apart from widening the already gross inequities in the system. Apart from this, while it has some “bright spots” where India is indeed shining in the “glitzy” offices of the services sector, there are “dark stains” as far as the middle and lower-income segments are concerned, what with a decline in consumption coupled with supply chain crises leading to a “unique” stagflationary spiral, or low growth and high inflation scenario where a “double whammy” hits on both the demand and supply sides.
Monkey Business Again?? Why Covid and Monkeypox Can Lead to Another Wave, Imperilling The Fragile Recovery and Threatening Lives and Livelihoods
While many of the above trends relate to macro and micro-economic aspects, the worrying resurgence of the “virus” or worse, the emerging threat from “monkeypox” means that the global economy is “not out of the woods” yet and investors beware, as this can lead to another recession, much like the Covid induced downturn from which we are emerging just now. More than any other trend that can impact the entire global economy, a possible “Fourth Wave” can wreak havoc on both lives and livelihoods, and hopefully, we have learnt our lessons from the Third Wave, where an inability to anticipate the Second Wave led to deadly consequences worldwide.