Rates, the world economy will ride a “rollercoaster” between 2012 and 2023
Between 2021 and 2023, the world economy has been on a roller coaster ride. We actually emerged from the post-pandemic with “broken bones” and immediately afterwards we found ourselves facing the new danger represented by inflation. Normally the battle over unbridled increases was won over time and with great sacrifices and recession. This time the policy of the Central Banks, despite having made increases in the cost of money of 525 points by the Fed and 450 points by the ECB in 24 months, has found itself faced with resilient economies that have resisted without entering into recession.
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Indeed, 2023 ended with excellent performances on the stock markets (primarily that of the Italian Stock Exchange) which gained an average of 15%. This is probably because they have already discounted the turnaround in interest rate policy promised by the Fed and the ECB. The fact is that the bankers' messages in recent months, objectively not very clear, have however helped the economies which have avoided chain recessions. Analysts' forecasts are thus characterized by moderate optimism with the achievement of the inflation target of 2%, with a “soft landing” of the economy, in 2024 and a quiet restart in 2025.
Rates, the most resilient economy was the American one
The most resilient economy of all in this period was, without a shadow of a doubt, the American one, while the one that suffered the most (among the industrialized countries) was Germany, which fell into what is defined as a “technical recession”. Italy and France held firm and Spain moved more lively than the Eurozone countries. China, for its part, has grown albeit at 40% less than in its golden years. The central banks' strategy, according to many, has succeeded, for the first time, in its objective of lowering inflation without affecting growth in the slightest. Expansionary fiscal policy has also been a great ally, as has the moderation of inflation on the supply side which has helped reduce upward pressure on prices.
The latest macro data confirms that we are moving towards the last mile, which will bring inflation to 2%. This will slightly reduce the countries' GDPs but will not push them into recession. Now, to completely emerge from the current state of inflationary crisis, all that is needed is the action of the central banks, which should speed up the process of reducing the size of their balance sheets. The ECB, for example, is expected to reduce its balance sheet by 4.7 trillion. In 2024, around 500,000 million should be cut. And this will certainly be reflected in the markets and the economy. But how much is still unknown.
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