Is the global economy 'super bad' or 'super strange'?

Chief strategist outlines two key factors to watch in this challenging environment

Is the global economy 'super bad' or 'super strange'?

Is the global economy 'super bad' right now?

“Definitely not,” Kristina Hooper, Invesco’s chief global market strategist, declared late last week. “I think it’s more appropriate to describe it as ‘super strange’. I continuously hear financial professionals and clients telling me that they’re not sure what to make of it.”

She said some aspects of the global economy are very positive – while others are very negative, even though the sentiment is very negative right now.

What is undoubtedly awful is the Russian-Ukrainian war, with Russia making some gains and the war worsening and becoming more entrenched. That could cause rare global food shortages and commodity scarcities, leading to supply chain disruptions and higher costs, and she noted that “the risk of an energy cut-off remains a substantial threat to the European economy.”

The price of oil is also super bad with crude oil prices having risen significantly in the past five weeks. So, is the recession risk rising in the U.K. and Eurozone, which are being impacted by the Russian war on Ukraine, since those area are weaker and more vulnerable to recession.

“Their respective central banks have a  more delicate balancing act as they try to control high inflation,” said Hooper, “especially since they cannot solve for some of the key sources of inflation.”

There are several factors that are not super bad, however.

The U.S. employment situation is one since wage growth is slowing, so wages may not be as problematic for inflation. The slowdown is also following the U.S. Federal Reserve’s plan.

“I am hopeful this could continue, with little in the way of layoffs but a significant decrease in job openings, which could certainly help to alleviate wage pressures going forward,” said Hooper.

Market-based inflation expectations have also fallen in the U.S., Germany, and U.K. and China’s situation is expected to improve as it becomes loosens COVID lockdowns in its major cities.  The U.S. government is also considering rolling back some Trump-era tariffs, and there are signs of regulatory easing in China, too.

“Some parts of the global economy are in poor shape, but other parts are not,” she said. “Some companies are benefiting from this environment while others are not.”

Hooper recommended being selective, focusing on industries and companies that can perform well in this environment. She also recommended watching the consumer price index and central bank activity.

“I’m interested in their outlook for inflation and their respective economies, given this challenging environment,” she said.