World economy walks a tightrope

The world economy is beginning the new year on a more optimistic note, though that is no guarantee 2023 will end that way.

A variety of factors – a sooner-than-expected reopening of China’s economy, a warmer-than-normal winter in energy-strapped Europe and a sustained fall in US inflation – are combining to dissipate some of the gloom that engulfed financial markets at the end of 2022 and fanning hopes the world can dodge a recession.

But with the Federal Reserve, European Central Bank and several peers still pushing ahead with higher interest rates, the risk of a slump later in the year cannot be dismissed, especially if inflation proves sticky and does not retreat as much as central banks want.

“We have seen peak dollar strength,” Kroll Institute chief global economist Megan Greene said. – Bloomberg