The global economy has been remarkably resilient to sharp interest rate increases from central banks over the past two years, with major economies showing no signs of recession. According to Steven Wieting, the chief investment strategist and chief economist at Citi Global Wealth, the global economy does not need a collapse to rein in inflation and return to sustainable growth.
An Optimistic Outlook
Wieting’s optimistic outlook stems from the fact that major economies, particularly the United States, have managed to avoid a recession and maintain a robust labor market. This has led to discussions about potential rate cuts, as inflation trends downward and growth slows. Wieting emphasized that the global economy does not require an economic collapse to address the inflation problem.
Global Resilience and Economic Indicators
Despite challenges such as manufacturing and trade declines, Wieting remains confident that these issues are likely to bottom out within the year. One key indicator is the U.S. headline inflation, which decreased to an annual 3.4% year-on-year in December, down from a peak of 9.1% in June 2022. Investors are closely monitoring the personal consumption expenditure inflation figure, the Fed’s preferred metric, for insights into potential rate cuts. Additionally, a preliminary estimate of fourth-quarter GDP is anticipated, with the economy expected to show 1.7% growth, its lowest rate since a 0.6% decline in the second quarter of 2022.
Healthy Growth Projections
Looking ahead, Wieting foresees a healthier growth period, particularly in the upcoming year and beyond. He attributes the current excess supply in the economy to excess government fiscal stimulus related to pandemic recovery, and emphasizes that this is not a result of prolonged overheating or boom. Wieting indicated that this period of slower global growth and employment growth in the U.S. is expected to give way to a more robust growth phase.
He pointed out that the current environment differs from sustained inflation, highlighting the decline in money supply in the United States over the past year, as opposed to the high growth rates experienced in the 1970s. Wieting also underscored the upheaval in supply and demand, and fluctuating consumer spending between goods and services during the pandemic period. His analysis suggests that the economy is no longer in that environment, indicating a more stable economic landscape.
In conclusion, the global economy is poised for a strong recovery, with no imminent recession in sight. Despite challenges such as inflation and slowing growth, the analysis from Steven Wieting provides a positive outlook for the global economic landscape, emphasizing resilience and future growth prospects.