We need to pay more attention to misaligned economic signals – Financial Times

by | Jan 9, 2023 | Financial

The writer is president of Queens’ College, Cambridge, and an adviser to Allianz and GramercyInflation was the dominant economic and financial issue of 2022 for most countries around the world, particularly for those advanced economies that have consequential impact on the global economy and markets.The effects were felt in worsening living standards, higher inequality, increased borrowing costs, stock and bond market losses and the occasional financial accident (fortunately small and contained until now).In this new year, recession, actual and feared, has joined inflation in the driver seat of the global economy and is likely to displace it. It’s an evolution that makes the global economy and investment portfolios subject to a wider range of potential outcomes — something that a growing number of bond investors seem to realise more than many equity counterparts.The IMF is likely to soon revise down its economic growth projections again, expecting that “recession will hit a third of the world this year”. What is particularly notable to me in this deteriorating global outlook is not just that the world’s three main economic areas — China, the EU, and the US — are slowing down together, but also that this is happening for different reasons.In China, the messy exit from a misconceived zero-Covid policy is undermining demand and causing more supply disruptions. Such headwinds to domestic and global economic wellbeing will continue as long as China fails to improve the coverage and effectiveness of its vaccination efforts. The strength and sustainability of the subsequent recovery will also require that the country more aggressively revamps a growth model that can no longer piggyback on greater globalisation.The EU continues to deal with energy supply disruption …

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