Good vibes in the global economy

We don’t want to jinx it, but the global economy may be starting to shake off the winter blues.

Driving the news: A slew of new reports, surveys, and forecasts from around the world indicate that the odds of a “soft landing” (in which inflation falls without a recession) are improving.

  • Both the US Federal Reserve and the Bank of Canada are just about ready to hit the pause button on interest rate hikes, and markets are now pricing in rate cuts later this year.
  • The eurozone will not face a recession this year, according to an important survey of economists—just last month, the same group was predicting a painful downturn.
  • At Davos last week, a top IMF official signalled that it will soon upgrade its forecast for global growth.

Why it’s happening: A widely-feared surge in energy prices never materialized (thanks in part to a warmer-than-expected winter in Europe), China unexpectedly ended its zero-Covid policy, and (the optimists believe) inflation has peaked.

Yes, but: Don’t pop the champagne just yet. There are still some unresolved issues that could turn the hoped-for soft landing into an ugly crash. 

  • The debt ceiling fight south of the border is a total wild card. Best case scenario: It rattles markets a bit before blowing over. Worst? It sparks a full-blown financial crisis.
  • How China’s re-opening will impact inflation isn’t yet clear, and more demand in the Chinese market could push up energy and commodity prices. 

Bottom line: No one knows where we’ll be a year from now, but there are more positive signals in the economy than there were just a few months ago.