Economist Dr. Nidal Al-Shaar says, “The financial market indicators indicate that the world is witnessing a recession approaching depression. The (Dow Jones) index fell during the past six months by about 25 percent, as did the (S&P), (Nasdaq) and (Germany’s DAX) indices. ), while those concerned and economists find that the GDP in developed countries such as the United States and Germany has increased and that the unemployment rate has decreased, especially in the United States, which has reached the stage of full employment where the unemployment rate does not exceed 3.5 percent, which is an unprecedented number. Factories and shops Companies need workers and cannot find them.”
old modern phenomenon
Al-Shaar describes this phenomenon, in his speech to the “Sky News Arabia” website, with the separation between financial markets and the real economy, and considered it an old modern phenomenon, but the world did not get used to it during the past period, as the reason for this is due to two types of expectations, the first relates to expectations of raising interest rates , and the second with expectations related to supply and cost.
In his explanation of the first type of expectations, the economist points out that “the US Federal Reserve started raising interest rates, as well as European central banks and even the central banks in our region because their currency is linked to the US dollar, and these expectations warn that raising interest rates will lead to a slowdown in overall demand, and this slowdown can Interpret it as a recession if prices are exaggerated.”
As for the second type – Dr. Shaar continues – “The second expectation is from the point of view of supply and cost, and in my opinion, the Russian-Ukrainian war was the spark that created this new reality, i.e. the rise in energy and food prices, and all of this affects productivity and domestic production in general, as the high Prices will affect demand, which means lower productivity and thus lower GDP. These two factors push towards stagflation, and in the end, they lead to a slowdown in demand and the economy in general, with prices remaining high in the event the war in Ukraine continues.
high benefits
In turn, Amr Abdo, the financial analyst and co-founder of Market Trade Academy, confirms what the economist Al-Shaar said, when he pointed out that there is a discrepancy between the state of the economy in general and the state of the financial markets due to the different data that affect them, attributing the reason to the general mood of investors and capital owners in the financial markets. The result of their research is the return on capital, as well as the cost of risk between stocks and bonds.
Abdo added: “The recent decline in the financial markets, specifically the stock and bond markets, is due to high inflation, especially in the United States, which prompted (the US Federal Reserve) to raise the interest rate. From 1.5 percent to 3.3 percent, and when we compare these returns with the profits of companies listed in the SNP 500 Index of American stocks, which amount to 1.7 percent, we find that the difference tends towards bonds on the one hand, and the risk difference weights the balance of bonds, which led to large exits from the markets Shares in favor of other assets.
Financial analyst Abdo highlights the impact of technology companies’ shares by raising interest rates, saying: “We noticed that the (S&P) index has fallen 22% since the beginning of this year, but the (Nasdaq) index, which includes technology companies more, has fallen by about 32%, and the reason is that These companies alone depend heavily for their growth on borrowing from the money markets or banks, and when interest rates are raised, the cost of debt will be large for them, and this in turn will be at the expense of profits, which makes them less attractive to investors, causing collective exits from them, and therefore we find the decline and decline in the technology sector more who else”.
Abdo ruled out a recession, especially in advanced economies such as America, pointing out that the solvency of the American consumer, which is the most important pillar of the economy, is very good, specifically during the past three years, as well as the solvency of Americans who have real estate at its highest levels historically, as the wealth inherent in real estate reached $27.3 trillion, and this is also a historical record, which means that there are no signs of a problem in the real estate market, especially since mortgages are at low levels, in addition to the fact that the labor market is still strong.
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