Given
the prevailing optimism in financial markets, the long-awaited recession is
being postponed again, even though central banks are cautious about tightening
monetary policy.
Moreover,
the Organization for Economic Cooperation and Development revised its 2024
global economic forecast upward by 0.2 percentage points. This contrasts with
forecasts of a hard landing…
The
projections now point to a global GDP of 2.9% for 2024, up from November’s
estimate of 2.7%, and for 2025 it is expected to remain at 3.0% ). India leads
the way over the next two years, followed by Indonesia.
January
also brought positive news from the JP Morgan S&P Global PMI indices, with
Manufacturing at 50 (vs. 49.0 previously), Services at 52.3 (vs. 51.6) and
Composite at 51.8 (vs. 51.0).
Despite
supply chain disruptions due to tensions in the Red Sea, inflationary
pressures are slowly easing.
Overall,
the data seem to suggest that central banks could cut interest rates sooner
than expected, keeping the economy afloat. So is the optimism in the stock
market more than justified?
Not
necessarily.
A closer
look at the US reveals possible triggers for the crisis, such as a public debt of over 34 trillion dollars. The
substantial challenge lies in paying interest to creditors, which exceeds
national defense spending.
While
cutting spending, especially military spending, might be a rational solution,
geopolitical tensions make this unlikely. Cutting social programs poses its
challenges, with the risk of social unrest and protests, particularly ill-timed
in the run-up to presidential elections.
To
complicate matters, the federal government continues to spend more than it
generates through taxes and other revenue sources, leaving no clear way out of
this financial cycle.
As for
the consequences:
- Rising indebtedness could lead credit rating agencies to downgrade the country’s creditworthiness, translating into higher interest rates on public debt and exacerbating the debt problem.
- An inflationary trap is another risk if the government resorts to money printing to meet debt obligations, which would harm savers and investors.
- Ultimately, difficulties meeting debt obligations may force negotiations with creditors, implementing austerity measures, or even debt default.
To avoid
worst-case scenarios, the government can try to reduce debt levels. However,
this also implies a reduced ability to respond to emerging problems. Thus,
if crises in regional banks or in the commercial real estate market intensify,
they may not all be salvageable, with the consequent risk of a new crisis.
Although
current forecasts maintain an optimistic outlook, the repercussions of the
present prosperity may become more evident in the longer term. In
conclusion, allocating part of the portfolio to hedging instruments such as
precious metals and closely monitoring macroeconomic indicators, including the gold
price chart, is advisable.