Global economic conditions look grim as rising inflation and the value of a variety of financial investments continues to decline. Since May 2, 2022, the crypto economy has dropped more than 15% from $1.83 trillion to today’s $1.54 trillion. Gold prices fell 5% over 30 days and the major stock exchange indexes saw record lows in the past 2 weeks. While many people hope the world’s financial markets will see a turnaround, there are three major obstacles impeding the path to recovery.
3 Factors That Will Impede the Global Economy’s Healing Process
Although many are shocked by the current economic woes, there is no denying that many individuals foresaw the coming downturn after the stimulus programs implemented to counter Covid-19. Global markets look terrible right now, with equities falling in value and precious metals sliding over the last month. Crypto markets have also been chaotic for the past 30 days.
Investors were able to take advantage of Monday, May 9th 2022. won’t forgetThe Nasdaq index fell by 4% while gold declined by 2% and crude oil dropped by 77%. Meanwhile, the crypto economy lost 8% in the past 24 hours. The economy could continue to slide until the situation changes. There are three reasons for this. The main reasons are the war in Europe and the Covid-19 crisis in China.
Ukraine-Russia War
First, it is easy to see that war does not benefit the economy, except for companies like Raytheon and Lockheed or Northrop. The stock market has seen a lot of declines, but six month statistics have shown that the stocks of those companies saw significant increases.
War is leading to greater inflation for ordinary citizens. Russia is under severe financial sanctions, so that many other countries won’t transact business with it. These financial sanctions, the most severe in recent decades have led to the escalating price of oil products and other goods.
Trends forecaster Gerald Celente recently detailed that as long as the Ukraine-Russia war ensues, the “odds of recession increase.” Many other forecasters and financial analysts believe that as long as the war continues, the “U.S. economy will slow, and Europe risks a recession.”
China’s ‘Zero-Covid-19’ Strategy
Another factor that may impede the global economy’s healing progress is China’s recent Covid-19 lockdown measures. During the past two months, China’s authorities have tested a two-phase lockdown in Shanghai with its strict “zero-Covid-19” strategy. According to multiple reports, investors have been shaken by the recent leveraged measures China took.
Five days ago, the New York Times wrote that China’s Covid-19 policies are making it so European investors are wary of investing there. The NYT highlights a survey that says “lockdowns and supply chain issues have soured European businesses in China on the idea of further investment in the country.”
China’s lockdowns and the “zero-Covid-19” strategy have investors shaking in their boots because of what happened in 2020. When China was dealing with Covid-19 in early 2020, many believe the country’s lockdown tactics spread across the world causing a great number of countries to shut down their economies. Investors today are likely frightened that this could happen again and China’s “zero-Covid-19” strategy will spread to other regions worldwide. This could lead to economic disruption and an increase in global market closures.
Erratic Bond Markets
Financial investors are also suffering from the fact that current bond market yields have become unpredictable and wild. On May 10, reports show that the 10-year U.S. Treasury yield slipped by 3% on Tuesday, “as fears of rising inflation and a potential economic slowdown lingered.” In addition to U.S. bond market carnage, bonds in Europe have been extremely volatile as well.
People fear volatility in bond markets because they are generational investments with long-term returns that can affect fixed income investors. Bond markets have been tanking for weeks on end and many believe the economy won’t heal unless bond markets stabilize. Although the Ukraine-Russia conflict is being blamed for the collapsed bond markets, they had been showing signs of weakness long before that conflict.
Younger generations of bond investors are not experiencing volatility this severe. The director of global macro at Fidelity Investments, Jurrien Timmer, says the current bond bear market is “historic.” In the same report, JPMorgan Asset Management’s chief investment officer, Steve Lear, said the broken bond market is painful. “It’s been a real and significant and painful move,” Lear said. “For those who haven’t experienced a bond bear market, this is what it feels like.”
These are three major problems for the global economy. If they don’t get addressed, a deeper recession may be on the horizon. Presently, the Ukraine-Russia war continues, China’s lockdown measures are still shaking investors, and bond markets have been erratic for weeks on end and continue to rattle investors to this very day.
How do you feel about these three potential stumbling blocks to a global recovery of the economy? Comment below and let us know how you feel about the subject.
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