This is one of the most loaded questions in the world of business. There is no simple straightforward answer. Instead, it’s a complicated function of numerous indicators and parameters.
Diplomacy aside, however, experts are worried about the probability of a global recession. This is mainly due to the consistent weakness in the prices of oil and copper in spite of the gradual reopening of the Chinese economy.
Let’s attempt to understand these signs and draw our own inferences to be sure.
What China’s reopening means for the world economy
The Chinese economy is gradually starting to ease back into pre-covid routines. Trade lines are opening up and demand is on the rise.
Why is this important for the global economy?
Well, in today’s age of global connectivity, everything is interlinked. When a major economy like China opens its doors after a couple of years of caution, the ripple effects will be felt far and wide. Trade will increase and there will be more demand and supply. The increased participation is expected to provide a boost to global demand and growth.
“The reopening and the recovery of Chinese domestic demand could raise global GDP by 1% by the end of 2023.” — Joseph Briggs and Devesh Kodnani, Goldman Sachs.
So on the one hand, we have a positive outlook with cautious optimism on the horizon. Now let’s look at how the other parameters are holding up.
Crude oil and copper prices continue to show weakness
Crude oil and copper are both used extensively in the process of industrialisation. These two are raw materials in many key formulas across the heavy engineering sector. When manufacturing increases and factories scale up production, we generally see an increase in the demand and the price of crude oil and copper.
In other words, if you see the demand for crude oil and metals on the rise, it is an indication of growing manufacturing output.
However, the prices of crude oil and copper are on the decline! In 2023, the price of crude oil has fallen by 6% and the price of copper has fallen by 5%.
Thus we have a clear diversion in the sand. The indicators are not moving in sync and this can be a premonition of impending danger in the global markets.
“Two-thirds of the economists polled by the WEF for its Chief Economists Outlook report said a global recession – a shrinking of the world’s gross domestic product – was likely in 2023.” — Al Jazeera
Not to be bleak, but most of the signs still point in the direction of a global recession. The economic indicators are weak, to say the least. Central banks have pushed too hard, and too fast with monetary policy interventions. Inflation is now at an all-time high and this is wreaking havoc with the normal growth rate in demand.
But nothing is set in stone. Let’s see what the future holds!