In his October 19 presentation at the Paper and Plastics Recycling Conference, Tom Joyce, Managing Director and Financial Markets Strategist at MUFG Bank Ltd., apologized for delivering what he described as “not the most optimistic outlook”, adding: “It’s hard to be constructive if the low point is in the first half of 2023.” He warned attendees that “a tough six months” lay ahead from a macroeconomic perspective.
“We’ll get through this,” Joyce said, adding that while she won’t live up to the economic meltdown of 2008, it will be “a tough time in the market and the economy.”
Joyce stressed that the situation is not unique to the United States, pointing to a “massive synchronized inflation problem” globally. “Wherever I go, inflation is a problem and labor shortages are a problem.”
He added that the world’s 90 central banks have embarked on policy tightening to fight inflation. “That has never happened in my 27 years on Wall Street.”
“Almost every major economy in the world is slowing down at the same time,” Joyce said, adding that Russia and China were exceptions. Such a global deceleration happened in 2016 and during the 2018 US-China trade war. “But it is happening more powerfully right now. And it’s a very difficult environment to live in.
The combination of synchronized policy tightening and synchronized deceleration leads to out of sync selling in global markets, Joyce said, noting that everything but the U.S. dollar and energy commodities have traded negatively this year. .
“When the dollar goes on these little strengthening runs, it’s not really good for the global economy,” he said. “And, ultimately, it sort of trickles down to the United States and it’s not entirely positive.”
Joyce said that while the stock market typically experiences a 20% correction every two years, that’s not typical in the investment-grade bond market. “In 50 years, that number has only been negative four times – only four times – and we’ve never had a double-digit negative year. And this year, this market is down 20%.
Much of the economic turmoil has been fueled by global supply-side shocks that began in 2018 with the US-China trade war, the COVID-19 crisis in 2022 and the Russia-Ukraine crisis that began in February. “We’ve had three consecutive major shocks to the global economy, and global supply chains have all started to change during each of those individual crises,” Joyce said.
Regarding the conflict between Russia and Ukraine, although it is quite contained from a military point of view, he said, it has turned into a larger geo-economic war between Russia and the West which drove up energy prices and forced Europe to change its energy policy, reducing its dependence on natural gas on Russia from 40% to 9% in just eight months.
“Russia is losing this war on the ground, and that has implications for all of us in this room,” Joyce said. “Russia is too weak to win this war, which was a surprise, and it is too strong to lose it. Surrender is not an option. It’s highly, highly unlikely. And, so, I think we should expect it to last a little longer rather than shorter, get a little worse before it gets better.
Joyce said that within three to six months the maximum impact of global monetary tightening will be felt, giving way to an out of sync global recovery in the second half of 2023 which will see Europe and the UK take longer to recover. realize that the United States.
“I think the data is pretty obvious that Europe and the UK are going into recession now, right now as we speak at the start of the fourth quarter, but they’re going into the first quarter and getting worse. maybe extend a bit longer into the second quarter and beyond or just be very weak beyond that,” he said. “And the United States and the global economy will be moving towards this ZIP code over the next six to nine months.
“The next recession is probably going to be a bit long and deep in Europe UK. Nothing like ’08-’09, but uncomfortably long with a shallow recovery,” Joyce continued. “But the one in the United States and probably the one globally, we think will be short and moderate in size – less than 1% contraction, maybe half a point contraction, in the US economy.”
He said that the United States is more resilient than most countries in the world in terms of factors affecting the current economy given that the country is independent of energy and food and exports only represent 11% of US gross domestic product (GDP), while in Germany, the world’s fourth largest economy, international trade accounts for 40% of its GDP, leaving it exposed to Russia and China.
“It will get better in the second half of 2023 according to our base scenario, but we have more difficult months ahead. The geopolitical situation is likely to get a little worse, the economy, in our view, will get a little worse and then recover.
The Recycling Today Media Group organized the Paper and Plastics Recycling Conference October 19-20 in Chicago.