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Home Opinion Editorial

Recession fears

Manila StandardbyManila Standard
June 24, 2022, 12:15 am
in Editorial, Opinion
Reading Time: 3 mins read
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World financial markets of late are swinging wildly because of recession fears.

Traders of oil and other global commodities, currencies, stocks and bonds are speculating the global economy is headed for a recession after the disruption in the supply of key commodity products, higher inflation and the response of central banks to raise interest rates.

Market players are trading down stocks in anticipation of a negative world economic growth.

Most companies listed in stock exchange offer little incentives to investors.

The revenues of these firms are not expected to grow strongly enough to justify dividend payments to stockholders, not under a high inflationary regime where interest rates are being aggressively hiked to curb surging prices.

The Ukraine-Russia war has choked the supply lines of crude oil, wheat and corn, resulting in higher prices of these commodities in the world market.

Rising crude prices have pushed up the cost of fuel and transportation.

These, in turn, increased the prices of meat, vegetables and basic commodities that need to be transported from their source to the market.

China, the world’s second-biggest economy, is compounding the problem in the supply chain.

The general lockdown in the industrial regions of Beijing, Shanghai, Shenzhen and Hong Kong, because of China’s zero COVID-19 policy, has also disrupted the supplies of computers and integrated circuits to the global market.

The broken supply link of commodities and industrial products has sent inflation rates in the US, Europe and developing nations like the Philippines soaring.

The US Federal Reserve Board and other central banks in the world reacted to high prices by increasing interest rates – or the borrowing cost of money – several times. Higher interest rates will slow down spending and eventually tame the inflation rate.

Unfortunately, the higher cost of money, or interest rate, will prompt consumers to postpone their investments, spend less on their credit cards and save their cash.

The general economy will slow down as a result of decreased demand from consumers. Oil traders, too, are anticipating the possible global recession.

They are buying less in the international market on expectations that the global consumption will decline.

Crude prices in the world market lately have gone down to just over $100 per barrel from over $120 a week ago.

The Philippines, meanwhile, will eventually feel the global crunch even if it is currently enjoying a strong economic recovery.

The peso is depreciating as a foreign exchange investors switch to higher-yielding currencies like the US dollar. Investment instruments denominated in US dollars are now more attractive than the peso because of higher yields or interest rates.

But a weaker peso makes imports like crude oil, rice and capital equipment costlier to purchase. And with the US, Europe and other major economies facing a possible recession, Philippine exports face the challenge of keeping their market amid a reduced demand.

Tags: EditorialGlobal economyRecessionworld financial markets
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