Certain indicators suggest that economic stability and recovery may well be on the horizon in the U.S.
First, amidst a 3.2% expansion of the economy in the third quarter of 2022, December unemployment data showed that labor market conditions have improved, with wage inflation on its way down.
Second, global manufacturing purchasing managers indices (PMI) showed signs of recovery in early January. Future solid performance in the U.S., China, and Europe is needed, though, for sustained global economic growth.
Germany, a global manufacturing hub, also demonstrated a strong rebound in December. The manufacturing PMI, published by S&P Global, rose to 47.1 from 46.2 in November, the best reading for three months. Though still south of the 50 marker, the dividing line between growth and contraction, the improvement appears positive. Other countries, including India, the Philippines, Russia, Mexico, Colombia, and Indonesia, also showed positive PMI growth.
In addition, with newfound confidence about future output, companies are reporting an easing of supply-side frictions, an improved job market, and lower inflationary pressures.
Recovery in 2023 depends on what transpires in Russia’s war on Ukraine, whether global inflation remains high or declines, and whether the world is in fact near the top of the global interest rate cycle.
Most of the world, according to the South China Morning Post, may experience a moderate downturn rather than a full-on economic meltdown, despite reports from the International Monetary Fund (IMF) that one third of the global economy would fall into recession in 2023.
“The world needs some time to adjust to tighter monetary conditions and the rise in borrowing costs. As long as global policymakers don’t rush to withdraw fiscal reflation at the same time, the world should come out relatively unscathed,” the Morning Post argued.