According to US Treasury Secretary Janet Yellen, the global economy isn’t doing so badly. You said so today at the G20 meeting. Not only the United States, but other economies as well would demonstrate their resilience in this period of skyrocketing inflation and economic uncertainty.
BNR in-house economist Han de Jong agrees with that view, he says. He thinks the prospects are much better now than thought a few months ago. This, he says, is due to two main factors. “First, energy prices have come down considerably,” he says. “In Europe in particular, gas prices have fallen spectacularly after rising spectacularly through August.”
That price is now considerably lower again, and De Jong calls that good news. He also calls it good news that China has ended the zero-covid policy, after which the Chinese economy is open again. “It may take a while to get things back on track, but it will have a significant positive impact on global business over the course of the year.”
Problems fixed
De Jong also talks about problems solved in other parts of the world. For example, supply chain issues have more or less been resolved, international freight rates have decreased, and he points out that a whole range of purchasing power support measures have been introduced in Western countries.
“On balance, people have suffered a significant loss of purchasing power in the past year, and measures have been taken to support purchasing power in response,” says De Jong. “And now they’re in.” According to De Jong, there really is the possibility that they will turn out to be “very generous” and that purchasing power will develop much more positively in the current year than feared some time ago. “All in all, I think the outlook is much better than it was a few months ago.”
Inflation remains a problem
However, Yellen stresses that inflation remains a big problem and that we need to remain vigilant. And herein lies the big “but” of the matter, thinks De Jong. “Inflation is obviously much higher than desired, and much higher than is good,” he continues.
“We have not yet seen the growth dampening effect of interest rate hikes.”
And that still causes problems, he thinks, especially for central banks. Eventually, they must curb inflation by raising interest rates, which they have already done vehemently, according to De Jong. “So I would be cautious, because we know that rate hikes have a lagged effect on the economy,” he concludes. “So we haven’t yet seen the dampening effect of growth on increases.”
Extremely difficult
According to De Jong, what makes things even more difficult for central banks is the fiscal policy of governments. While central banks try to curb growth, governments want to go the other way. “Central banks are therefore somewhat hampered.”
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
