In a world marked by ongoing conflicts and an increasingly complex geopolitical landscape, the global economy has emerged as a surprising beacon of optimism. Just a year ago, predictions of an imminent recession fueled by soaring interest rates were commonplace. However, the world has witnessed an astonishing turn of events. The US economy, in particular, roared to life in the third quarter, boasting a remarkable annualized growth rate of 4.9%. Across the globe, inflation is receding, unemployment remains relatively low, and major central banks are reconsidering their monetary tightening policies. Furthermore, China, grappling with a property market crisis, appears poised to benefit from a mild stimulus package. Yet, beneath the surface of this economic euphoria lies a precarious foundation. As we look to the future, numerous threats lurk on the horizon.
This unwavering optimism has fueled expectations that interest rates, while no longer soaring, will remain relatively stable. Recent decisions by the European Central Bank and the Federal Reserve to maintain rates at current levels have contributed to a significant uptick in long-term bond yields. In the United States, for instance, the government is now required to pay a 5% interest rate for 30-year borrowing, a dramatic increase from the mere 1.2% recorded during the depths of the pandemic recession. Even nations accustomed to low interest rates have witnessed substantial hikes. Germany, previously grappling with negative borrowing costs, now faces a nearly 3% ten-year bond yield. The Bank of Japan, in its struggle to keep its promise of capping ten-year borrowing rates at 1%, appears to be relinquishing control.