Global Markets Edge Lower as Investors Weigh Growth Prospects Against Rising Inflation
The war in Ukraine and rising inflation are putting a significant drag on growth, and investors are losing faith in central banks.
European stock futures edged lower on Wednesday, as investors weighed the prospects for economic growth against the rising threat of inflation.
The pan-European Stoxx 600 index was down 0.1% in early trading, while the German DAX index was down 0.2%.
Investors are looking ahead to the release of Eurozone GDP data for the first quarter of 2023, which is due out later in the day. Economists are expecting the economy to grow by 0.3% in the first quarter, down from 0.7% in the fourth quarter of 2022.
The slowdown in growth is being driven by a number of factors, including the war in Ukraine, which is disrupting supply chains and causing energy prices to rise. Inflation in the Eurozone is also at a record high, reaching 7.5% in March.
The combination of slower growth and rising inflation is making it difficult for investors to determine whether the Eurozone economy is headed for a recession.
“The risk of a recession in the Eurozone is rising,” said Carsten Brzeski, chief economist at ING. “The war in Ukraine is putting a significant drag on growth, and inflation is eating into household incomes.”
The sell-off in European markets is being mirrored in markets around the world. US stock futures were also down on Wednesday, as investors awaited the release of US GDP data for the first quarter of 2023. Economists are expecting the US economy to grow by 1.1% in the first quarter, down from 6.9% in the fourth quarter of 2022.
The slowdown in US growth is also being driven by the war in Ukraine and rising inflation. Inflation in the United States is at a 40-year high, reaching 8.5% in March.
The combination of slower growth and rising inflation is making it difficult for investors to determine whether the US economy is headed for a recession.
“The risk of a recession in the United States is rising,” said Mohamed El-Erian, chief economic advisor at Allianz. “The war in Ukraine is putting a significant drag on growth, and inflation is eating into household incomes.”
The sell-off in markets is a sign that investors are increasingly worried about the global economy. The International Monetary Fund has warned that the global economy is facing a “synchronized slowdown,” and that the risk of a recession is rising.
The sell-off in markets is also a sign that investors are losing faith in central banks. The Federal Reserve and the European Central Bank have both raised interest rates in an effort to combat inflation, but these measures have so far failed to slow the pace of price increases.
The sell-off in markets is likely to continue in the near term. The Federal Reserve is expected to raise interest rates by 50 basis points at its next meeting in June, and it is possible that the central bank will raise rates by more than 50 basis points in the future. This could lead to a recession, which would further damage markets.
