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The worst may already be behind us
A more moderate slowdown and improved global liquidity support financial markets
2023 recession fears recede
Last year, supply chain shocks, tight labour markets and an energy crisis obliged global central banks to raise interest rates sharply to put the brakes on the global economy, and thus curb soaring inflation.
In contrast, the start of 2023 saw a partial reversal of these effects: supply chains renormalised, energy prices collapsed from their late-2022 peaks, and central banks approached the end of their rate hiking cycles. These factors, coupled with the surprisingly fast reopening of the Chinese economy following COVID restrictions, have greatly improved economic momentum, thus abating fears of deep or prolonged recession.
Global liquidity up after falling in 2022
Another positive for economic growth and financial markets so far this year is the new wave of fresh global liquidity. Since last November, the People’s Bank of China and the Bank of Japan have injected substantial additional liquidity into their financial systems, in order to bolster domestic growth and to maintain a cap on their respective long-term bond yields. These central bank actions resulted in an 8% increase in global money supply by mid-February.
Two updated themes and a new one