[Good Morning Stock Market] Growing Stagflation Concerns... Declining Advanced Countries' GDP Growth Rates

IMF Lowers US GDP Growth Forecast from 7.0% to 6.0%
Dollar Strength Pressure Also Increases

[Image source=Yonhap News]

[Asia Economy Reporter Gong Byung-sun] As the global economy slows down, concerns about stagflation?where inflation rises amid an economic recession?are growing. Additionally, while short-term pressure for a stronger US dollar is not significant, there are observations that it could increase in the long term.

On the 12th (local time), all major New York stock indices fell. At the New York Stock Exchange, the Dow Jones Industrial Average closed at 34,378.34, down 0.34% (117.72 points) from the previous trading day. The S&P 500 index ended the day at 4,350.65, down 0.24% (10.54 points). The tech-heavy Nasdaq closed at 14,465.93, down 0.14% (20.27 points) from the previous day.

◆ Seo Sang-young, Researcher at Mirae Asset Securities = Stagflation is becoming a burden on the stock market. Meanwhile, the International Monetary Fund (IMF) lowered its annual GDP growth forecast for this year from 6.0% announced in July to 5.9%. In particular, most advanced countries saw downward revisions, with the US lowered from 7.0% to 6.0%, and Germany from 3.6% to 3.1%.

Among these, the consumer price index for advanced countries was revised upward from 2.4% to 2.8%, and inflation in emerging markets was adjusted up from 5.4% to 5.5%. The IMF agreed with the US Federal Reserve (Fed) and economists that high inflation is temporary but warned that the risk of inflationary pressures persisting during the recovery phase is increasing unexpectedly.

Meanwhile, Fed Vice Chair Richard Clarida eased market concerns about stagflation by stating that although signs of stagflation were evident in economic activity in the third quarter of this year, it is unlikely to continue as a trend. However, he also indicated that necessary responses are still being prepared and that vigilance remains.

The semiconductor sector is also under pressure, with Micron and the Philadelphia Semiconductor Index falling 3.61% and 1.34%, respectively, compared to the previous day. Market research firm Gartner forecasts a sharp drop in DRAM and NAND prices in the second half of next year, and TrendForce also expects DRAM prices to decline sequentially from the fourth quarter of this year through next year, adding to the burden. Furthermore, supply chain issues related to some integrated circuit components exposed to the global chip shortage are expected to lead to a short-term decrease in shipments.

(Provided by NH Investment & Securities)

◆ Kwon Ah-min, Researcher at NH Investment & Securities = After the 2008 financial crisis, China recovered through large-scale investments, but currently, China is restraining both domestic and external quantitative growth. China's investment-to-GDP ratio peaked in early 2010. However, overseas direct investments, including the Belt and Road Initiative, are progressing more slowly than initially expected.

From a capital market perspective, China has steadily pursued reform and opening policies, which appear to have elevated the status of the yuan compared to the past. Considering changes in the US real effective exchange rate, there have been fluctuations such as the yuan devaluation in 2015 and the trade dispute in 2018, but overall, it has remained within a range-bound zone. Policy shifts encouraging domestic consumption, including the dual circulation strategy, are expected to reduce yuan volatility and support a stable trend going forward.

Since 2018, US foreign investment has significantly decreased due to America First policies. In contrast, orders for core capital goods, a leading indicator of facility investment, have greatly exceeded expectations. Meanwhile, US President Joe Biden continues to emphasize the importance of infrastructure investment. In the short term, the possibility of economic and interest rate rebounds in Europe in the fourth quarter and additional pressure for a stronger dollar are expected to be limited. However, from a long-term perspective, due to differences in growth rate spreads, medium- to long-term pressure for a stronger US dollar may increase.