Will global growth grind to a halt?

Stock Market

Rise in gasoline prices concept with double exposure of digital screen with financial chart graphs and oil pumps on a field.

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By Gary Alexander

What a difference 90 days can make. As the New Year dawned, our biggest fear was the Omicron variant of COVID-19. For instance, our January Jazz Cruise in the Caribbean was canceled for the second straight year for fear of that “deadly” new strain – which did not turn out to be so deadly after all. When is the last time you saw Dr. Fauci on TV, or heard about a scary new “variant alert”? This week, I’m headed to Hawaii – the only remaining state with mask mandates, as the pandemic is thankfully nearly over.

In its place, of course, we have added another huge global concern – Russia’s military assault on Ukraine, launched on February 24th. Economically, that war has sent inflation into overdrive and economic growth into stagnation – something like those decimated Russian tanks stuck in the mud by roadsides in Ukraine.

According to a report released by the OECD last Tuesday, the Russian invasion of Ukraine, if prolonged, could knock 1.1 percentage points off the global GDP for 2021, while increasing global inflation by 2.5 percentage points over an already lofty inflation level. Previously, the OECD had predicted 4.5% global growth in 2021 (now 3.4%) and inflation rates averaging 4.2% (now 6.7%). The damage in Europe will be worse, they say, with the eurozone GDP 1.4% lower than previously thought, most likely in recession.

The damage will not be so bad in the US, the OECD said, but our GDP will still be 0.9% lower than they first expected, and inflation will also rise commensurate with global rates, since most commodities trade in terms of US dollars – but bear in mind that this doomsday scenario is based on a continued “hot” war.

Will the US follow Europe into a recession this year? It’s possible, but not likely. The Atlanta Fed has been ratcheting up its first-quarter GDP projection from below zero in late February and early March up to + 1.3% in the latest reckoning (posted March 17). The Atlanta Fed also tracks “blue chip” economists, who see 2% or greater first-quarter growth. (The Atlanta Fed’s next update comes out this Thursday.)

Atlanta Fed GDPNow Real Gross Domestic Product Estimate

Atlanta Fed GDPNow Real Gross Domestic Product Estimate (Author)

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

A CNBC “Rapid Update” after the war’s initial impact indicated a 0.8% dent in US GDP in the second quarter (from + 4.5% down to + 3.7%), but overall, they saw only a slight GDP decrease for the full year.

CNBC Gross Domestic Product forecast average

CNBC Gross Domestic Product Forecast Average (Author)

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

In late February, CNBC’s full-year outlook was + 2.95%. Now, it’s down to 2.75%. No big deal. When it comes to econometric projections, a 0.2% change amounts to a “margin of error” or a “rounding error.”

How About Household Net Worth? Has That Peaked?

In another report released March 10, the Federal Reserve noted that US Household Net Worth surpassed $ 150 trillion for the first time, rising 14.4% for 2021 after rising 12.5% ​​in 2020. It’s almost like COVID never happened! The fourth-quarter increase of $ 5.3 trillion came mostly from a $ 4 trillion rise in equities and housing. US GDP also grew at its fastest pace in 37 years in 2021 – the best year since 1984, the year of Reagan’s “Morning in America.” But stocks have fallen in 2022, so has household wealth peaked?

During the first COVID year of 2020, consumers paid off their credit cards and accumulated savings in fear of the future, but in 2021, we returned to our plastic spending addiction. Debt soared again in 2021 as consumers felt safe using credit, based on their future earnings potential. Total nonfinancial debt topped $ 65 trillion, with government accounting for nearly half of that ($ 28.6 trillion, or 44%) and the rest about equally split with $ 18 trillion each at the household and business levels. Government debt grew the fastest – at a 10.8% annual rate – as we will likely see three straight fiscal years (2020 through 2022) of federal budget deficits exceeding $ 2 trillion. Household debt rose 8% last year and business debt grew by 6.7%.

But all that debt is subtracted from the net worth figure – and we still surpassed $ 150 trillion in net worth.

Households and non-profit organizations net worth

Households and Non-Profit Organizations Net Worth (St. Louis Fed)

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

In case this graph is too small to read (at the far right-end), the growth in net household wealth in the first two years of the 2020s – roughly paralleling the years of COVID partial lockdowns – was + 28.7%, rising from $ 116.8 trillion at year-end 2019 to $ 150.3 trillion at end-2021. Those are nominal dollars, so part of that growth was eroded by inflation, but no more than about 10% should be subtracted for inflation in those two years, so net household wealth has been growing far above inflation rates – and that two-year $ 33.5 trillion gain includes an initial $ 6.3 trillion loss in 2020’s first quarter due to a stock market crash.

A Rapid Market Doubling Might Deserve a “Pause that Refreshes”

Before closing, let me pause to recall the absolute low in the stock market two years ago tomorrow morning. It came 15 minutes before noon on Monday, March 23, 2020, ironically just one trading day after our compatriot Jason Bodner predicted the market bottom. Here are the actual intra-day lows:

US market intra-day lows

US Market Intra-Day Lows (Author)

Even after the market’s first-quarter 2022 decline, three of the four top indexes doubled in two years. That should put the past two years in perspective and give hope for a strong recovery in 2022 once the “known unknowns” of a negotiated end to the war in Ukraine and the end of COVID-19 are finally behind us.

Will Russia kill 2022? No more than COVID killed 2020 and 2021. Human beings can be very resilient.

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Disclaimer: Please click here for important disclosures located in the “About” section of the Navellier & Associates profile that accompany this article.

Disclosure: * Navellier may hold securities in one or more investment strategies offered to its clients.

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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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