Why Things Are Looking Better for the Global Economy

Soft Landing Surprise

Worries about the health of the global economy may have been put to rest for the moment.

G20 finance ministers are meeting in São Paulo, Brazil, this week to discuss what has been an undoubtedly tumultuous few years for the world’s economy, including decades-high inflation, aggressive interest rate hikes, and lingering recessionary concerns. But even against this backdrop, a soft landing could still be within reach.

A soft landing refers to the successful fight against high inflation without triggering a recession in the process. This is what the Federal Reserve has been hoping for as it hiked interest rates. And finance ministers of the G20 nations seem to agree, according to reporting by Bloomberg citing a draft of the Brazil meeting’s closing statement.

US Leads the Way

The statement calls the tighter monetary policy around the world effective, and also credits easing supply chain disruptions for helping inflation come down faster than anticipated in most economies.

At a press conference ahead of the G20 meeting, U.S. Treasury Secretary Janet Yellen said the U.S. economy was on a path to a soft landing, buoyed by the historically strong labor market and surprising GDP growth. Yellen suggested this resilience has contributed to the success of global economies as well.

Sentiment has been improving on multiple fronts. The International Monetary Fund also revised its global growth forecast recently, nudging it up to 3.1% from 2.9% before on the back of better-than-expected growth in the U.S. and stimulus in China as the principal reasons for the increase. If this transpired, it would be great news for businesses and consumers alike.

Optimism and Caution

That said, we haven’t stuck the landing just yet. And there are plenty of clouds on the macroeconomic horizon, including several geopolitical conflicts, government budgets, and localized asset bubbles that could have knock-on effects. That’s to say, it’s worth being cautious, even if things are looking up.

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