With the restrictive measures taken against inflation, which began with protectionism in foreign trade and continued to grow with the pandemic and the Russia-Ukraine war, accelerated by rising interest rates, the bells of recession are ringing in the global economy. . Many financial institutions, most notably CitiGroup and Fitch Ratings, say the likelihood of the world going into recession is increasing.
Stagnation in the country’s economies, coupled with inflation, tightening and pandemic cases, have dramatically lowered the prices of commodities, particularly oil, steel, copper, zinc, tin and aluminum. Global markets have entered recession mode.
West Texas Oil (WTI) was 103, Brent Oil was less than $ 108. Steel and copper prices recorded the highest decline in years.
Economists, on the other hand, report that the global macroeconomic outlook has worsened since the beginning of the year due to tightening financial conditions, war and weakening growth, while inflation, rising interest rates interest and stagflation weaken the sectors.
Although it has been reported that inflation will rise more in recession and that the process of disinflation could impose great costs on economies, economists, who have said that the global economy will grow below 3 percent this year, comment that a new wave of unemployment could begin with the decrease in production.
Oil, steel and copper fell hard
The first reaction came from the energy and metals markets to concerns about the global recession. Brent crude fell 6% to $ 107, while US West Texas (WTI) crude fell to $ 102. Analysts commented that Brent crude entered a downtrend after dropping below $ 110 and that the figures of 90 dollars will be seen in a short time.
Expectations of a contraction in global supply and fears of a recession have also led to falls in steel and copper prices. Steel prices in China were at a 16-week low. Iron ore for September 2022 delivery on the Dalian Commodity Exchange traded at $ 107 since March 1, down 5%.
The July 2022 contract on the Singapore Exchange fell 4.7% to $ 109.50 / ton. Iron ore completely wiped out Singapore’s 2022 earnings. Rebar was down 1.3% and hot rolled coils 1.1% on the Shanghai Futures Exchange.
Analysts noted that markets are particularly concerned that demand growth may not occur while China’s zero-Kovid policy is in place, also highlighting the current oversupply in China’s steel industry.
Copper also suffered from the fear of recession. Copper prices in London fell more than 1% and hit a 14-month low as the stronger dollar and growing supply concerns put pressure on demand for the metal. Three-month copper on the London Metal Exchange fell 1.2% to $ 8,885 / mt. In Shanghai, copper delivery for July 2022 fell 0.4% to $ 10,121.
The metals market moves to Dubai
While prices have fallen sharply in the commodity market, Swiss commodity sellers and Russian manufacturers have shifted their business transactions to Dubai due to the economic embargo imposed by the European Union on Russia. From now on, investors who do business with Russian commodities will conduct their business from Dubai. Interestingly, investors have moved their businesses to other international centers besides Dubai due to the sanctions imposed on Russia.
Investors, who said commodity trading cannot be prevented, said the Middle East and Asia regions will stand out more than Europe’s commodity centers and gain significance from now on.
On the other hand, financial institutions reporting global recession problems are on the rise. Although US President Joe Biden and Treasury Secretary Janet Yellen have commented that there will be no recession in their country and in the world, Wall Street financial institutions are raising their expectations of a recession.
One of the institutions that shared the expectation of a recession was the US-based CitiGroup. Banking economists, who expect the global economy to grow below 3 percent this year, have brought unemployment and the recession warning to the agenda. Economists, especially the decline in commodity prices; They attributed to the continuation of the trend that monetary tightening, that is, the cycle of rising interest rates, will accelerate and extend recession expectations.
Macroeconomics is getting worse
The international rating agency Fitch Ratings also explains that the global macroeconomic outlook has seriously deteriorated since the beginning of the year due to the restrictive policies implemented against inflation. In the report published by Fitch analysts it is stated that inflation, interest rate hikes and stagflation have weakened the outlook for the sector. The Fitch report states that tightening financial conditions, weakening growth, the Russia-Ukraine war and continuing disruptions in the supply chain affect multiple sectors.
The Fitch report notes that the economic fragility caused by rapid interest rate hikes has dragged down GDP growth and that this situation will be less than 3 percent in the global economy.
Putting European Central Bank (ECB) monetary policy on the report’s agenda, Fitch Ratings says the new tool the bank will develop to help highly indebted Eurozone members can reduce financial risks and that policy options are still important.
Fitch also stressed that the back up will support the creditworthiness of these countries, but says progress in debt stabilization and reduction will continue to be important to countries’ credit ratings.
On the other hand, according to ECB analysts, European economic experts do not expect a stagflation similar to that of the 1970s in Europe. The ECB report notes that inflation expectations have risen due to the Russia-Ukraine war, while emphasizing that economic activity will increase next year and that inflation will fall below 2 percent in the second half of the year. 2023.
The threat of inflation persists
On the other hand, as the world economy goes into recession, inflation in countries is pushing the peaks of recent years. UK inflation in May hit a 40-year high at 9.1% per annum. The monthly increase in CPI, recorded in April of 2.5%, in May was 0.7%. Both inflation figures were in line with economists’ expectations.
While the Bank of England (BOE) predicts inflation will rise above 11% in October, many financial institutions report that rising inflation will continue in parallel with the BOE. According to economists, while monthly inflation has been lower than in previous months, the figures still reveal the inflation problem facing the UK.
Thomas Barkin, chairman of the US Federal Reserve (FED) Richmond, argues that inflation should increase interest rates rapidly before causing further damage to the economy. Barkin argues that inflation is in a high, widespread and persistent situation, while interest rates are below the normal level. Barkin warns that unless rapid rate hikes are made, the Fed may need to shift the current situation into a tightening zone.