The global economy looks bleak as inflation continues to rise and a wide range of financial investments continue to decline in value. Since May 2, 2022, the crypto economy has fallen more than 15% from $1.83 trillion to today’s $1.54 trillion. The price of gold has lost 5% in 30 days, and major stock market indexes have hit record lows in the past two weeks. While many are hopeful that global financial markets will turn a corner, there are three major obstacles to the recovery.
3 factors that will hinder the global economic recovery
While many people are surprised that the economy is floundering, many predicted an economic slowdown after the stimulus measures used to fight Covid-19. Currently, global markets are looking terrible as stocks are falling in value, precious metals have declined over the past month, and cryptocurrency markets have also become a bloodbath over the past 30 days.
On Monday, May 9, 2022, a day many investors will not forget, as the Nasdaq index fell 4%, gold fell 2%, crude oil fell 7%, and the crypto economy lost 8% in the last 24 hours. Currently, there are three main reasons why the economy may continue to flounder until things start to change. These reasons include the ongoing war in Europe, the current Covid-19 outbreak in China, and U.S. bond market yields.
The war between Ukraine and Russia
The first reason is simple to understand: war does not benefit the economy except for companies like Raytheon, Lockheed, Northrop and General Dynamics. While the vast majority of stocks have fallen sharply, the six-month statistics show that the stocks of the aforementioned companies have risen significantly.
For the rest of us ordinary citizens, the war leads to higher inflation. Significant financial sanctions against Russia have resulted in many countries not doing deals with it. This has caused the harshest financial sanctions in decades, which, in turn, has caused prices of goods and services, especially petroleum products, to skyrocket.
Trend forecaster Gerald Celente recently detailed that while there is a war between Ukraine and Russia, “the chances of a recession are increasing.” Many other forecasters and financial analysts believe that as long as the war continues, “the U.S. economy will slow and Europe will face recession.”
China’s zero-zero-covid-19 strategy
Another factor that could hinder the global economic recovery is China’s recent measures to block Covid-19. Over the past two months, Chinese authorities have been testing a two-phase blockade in Shanghai, applying a rigid “zero-Covid-19” strategy. China’s recent measures have shocked investors, according to various reports
Five days ago, the New York Times wrote that China’s Covid-19 policies make European investors wary of investing there. The NYT cited a study that “blockages and supply chain problems have turned European companies in China away from the idea of further investment in that country.”
China’s blockades and “zero Covid-19” strategy have investors shaking in their boots because of what happened in 2020. Many believe that when China dealt with Covid-19 in early 2020, blockchain tactics spread around the world, forcing many countries to halt their economies. Today, investors are likely terrified that a similar event could happen again, with China’s “zero Covid-19” strategy spreading to other parts of the world. In turn, such an event could again bring global markets to a standstill, impede supply chains, and cause economic chaos.
Unstable bond markets
The latest problem financial investors are suffering from is current bond market yields, which are wild and volatile these days. According to reports of May 10, the 10-year U.S. Treasury bond yield fell 3 percent on Tuesday, “as concerns about rising inflation and a potential economic slowdown persisted.” In addition to the carnage in the U.S. bond market, bonds in Europe were also extremely volatile.
The reason people fear bond market volatility is because bonds are long-term yield investment instruments that affect fixed income investors.Bond markets have been falling for weeks nowand many believe the economy will not recover until bond markets stabilize. The war between Ukraine and Russiais also being blamed for the destruction of the bond markets. but they were showing signs of weakness long before the conflict.
Moreover, younger generations of bond investors have not yet experienced this kind of volatility.Jurrien Timmer, director of global macroeconomics at Fidelity Investments, says the current bear market in bonds is “historic.” In the same report, JPMorgan Asset Management’s chief investment officer, Steve Lear, said the broken bond market is painful. “It was a real, significant and painful move,” Lear said. “For those who haven’t experienced a bear market in bonds, this is exactly what it looks like.”
These three factors are sores on the world economy, and if they don’t heal, an even deeper recession is possible. Currently, the war between Ukraine and Russia is ongoing, China’s lockout measures are still shaking investors, and bond markets have been volatile for weeks in a row and continue to worry investors to this day.
Image Credits: Shutterstock, Pixabay, Wiki Commons