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The recent European market slip indicates that investors remain cautious about the potential macroeconomic headwinds next year.
The pan-European Stoxx 600 index closed marginally lower than the flatline on Wednesday amid a broader market slip. As 2022 winds to a close, the Stoxx 600 is trading down more than 12% year-to-date (YTD). Furthermore, caution abounds throughout the European capital markets, with investors remaining wary of incessantly high inflation and central banks’ fiscal policy tightening. Lastly, investors also assess the impact of a global recession on likely headwinds in 2023.
The European Stoxx 600 began Thursday’s session down 0.5% in early trade. In addition, food and beverage stocks dipped 1% to lead losses as virtually all sectors were trading in the red.
European Market Slip Follows Asia-Pacific Decline
The European market slip appears set to extend the weak sentiment from the Asia-Pacific markets. Conversely, there was a slight gain among US stock futures to begin Thursday’s gain. Overall, global markets are hours away from rounding out a turbulent year characterized by disparate macroeconomic factors. These include the selloff of tech shares, soaring inflation from the fallout of Russia’s war in Ukraine, and persistent Chinese Covid restrictions. The fact that China recently relaxed its remaining zero-Covid measures did little to improve investor confidence. According to a recent assertion by an economist, the global economy heads into a decade of low growth. However, Tressis Gestion author and chief economist Daniel Lacalle, also stated that the full reopening of the Chinese economy remained the silver lining. In a media session, Lacalle explained:
“The reopening of the Chinese economy is certainly going to give a significant boost to growth all over the world, but also – and I think it is a very important factor – German exporters, French exporters have felt the pinch of the lockdown and the weakening of the profit environment in China, and this is certainly going to help a lot.”
Lacalle further noted that the projected Chinese boost would be different from the pre-pandemic growth levels for a while. As he put it:
“I think that we are probably going to move into a decade of very, very poor growth in which developed economies are going to find themselves lucky with 1% growth per annum, if they are able to achieve it…”
IMF Global GDP & Inflation Projections
According to International Monetary Fund projections, there will be a progressive slowdown in global GDP growth between 2021 and 2023. The IMF puts these figures at 6% in 2021, 3.2% in the current year, and a lower 2.7% in 2023. The Fund also described this growth trajectory as the weakest since 2001, barring the financial meltdown and early Covid phase.
Projections also state that global inflation could rise from 4.7% last year to 8.8% in 2022 before tapering off to 6.5% in 2023. Furthermore, global inflation is projected to drop even further to 4.1% in 2024. These figures remain above the target levels for several major central banks.
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