Everyone is a pessimist these days. Barely a day goes by without an economist downgrading their forecasts. On July 14th Steven Blitz of ts Lombard, an investment-research firm, said that he was now expecting a recession this year in the world’s largest economy, a day after Bank of America made the same call. Goldman Sachs, another bank, reckons Germany’s GDP shrank in the second quarter of the year and will also do so in the third. Americans’ Google searches for “recession” have never been so high, and by some distance. TikTok, a short-video platform, is full of clips telling Generation z how to budget as the downturn unfolds. Traders are selling copper (a proxy for industrial health), buying the dollar (a sign that they are nervous) and pricing in interest-rate cuts for next year.
Over the past 18 months a number of factors have combined to create a toxic mixture for the world economy. In response to the covid-19 pandemic America overstimulated its economy, provoking inflation not just within its borders but beyond them, as consumers’ voracious demand for goods bunged up the world’s supply chains. China’s attempts to stamp out covid compounded these problems. Then Russia’s invasion of Ukraine caused commodity prices to soar. In response to the ensuing inflation, roughly four-fifths of central banks worldwide have raised interest rates, by an average of 1.5 percentage points so far this year, causing stock markets to slump. The Federal Reserve is expected to raise rates for the fourth time in this cycle, and by three-quarters of a percentage point, after a meeting that ends on July 27th.
