Resilience among the storm clouds

A GLOBAL downturn in 2023 is increasingly becoming the base case. Indicators which have a good track record of predicting recessions in the United States, such as the shape of the yield curve and the Conference Board Leading Economic Index, are flashing red.

Increasing the risk of a hard landing is the aggressive interest rate increases delivered so far by the US Federal Reserve. Not satisfied with already raising interest rates at its fastest pace since the 1980s, the Fed is prepared to hike rates further in order to get inflation under control, even if it inflicts more economic pain. Europe is going through an energy crisis as a result of the Ukraine conflict, which will lead to an economic contraction next year.

China has recently turned into a bright spot as the country abandons its Covid-zero strategy and moves swiftly to managing the virus as endemic. Recent plans to rescue its crisis-ridden property sector will also help to halt the slide. Yet, China’s reopening path will be bumpy and may not be enough to offset the sharp growth slowdown among the advanced economies. But at least the narrative and outlook for China in 2023 has vastly improved.