David Brown

Macroscope | Global recession? Look forward to a good stock market rally instead

Are the gloomy forecasts about the global economy justified? The recovery of the US, Chinese and European economies, inflation easing and the glut of liquidity from previous crises should be enough to buoy investment for years

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A trader works on the floor of the New York Stock Exchange on December 14. Doing nothing or playing it safe is not an option after the disastrous run for stocks in 2022. Photo: Reuters

David Brown

Published: 5:45pm, 16 Jan 2023

We are in the midst of a full-blown bull market for global stocks. The bottom was reached in mid-October and the outlook for global recovery is much more sanguine than the bears would have you believe.

Global liquidity levels remain high, the appetite for risk is still strong and stocks should have the capacity for at least a further 20 per cent rally this year, on top of the 16 per cent gains already seen in the past three months.

Global recovery is still unwinding from the 2020 Covid-19 crisis and the subsequent 2021 supply-side crunch, leaving considerable scope for a rebound in world trade, considering the pent-up demand for goods and services still being delayed by the pandemic.

The combined force of the US, Chinese and European economies coming back to strength in 2023-2024 should be more than enough of a catalyst for the global stock market rally to extend over the next 2-3 years at least. Global investors should be keen to make up for lost time.

Mind you, it’s sometimes difficult to see past the downbeat views from the major forecasting bodies, such as the World Bank and International Monetary Fund, which have shifted to more pessimistic outlooks for 2023 global growth.

Last week, the World Bank warned that we are perilously close to a global recession, anticipating that growth could drop to as low as 1.7 per cent this year, down from an expected 2.9 per cent in 2022, the third-weakest rate in nearly three decades.