Are the concerns about the global economy warranted?

<p>There's definitely some arguments for and against the debated question above. However, at the end of the day, I would say that all that matters is what markets care about. So, let's take stock of the situation currently as we head into the second-half of the year.</p><p>The key thing that everyone has been watching is whether the continued policy tightening by central banks is going to lead to a soft landing or hard landing in the economy. The data continues to point to the former but after the banking crisis in March and April, there are growing worries that central banks are going to break something again down the road.</p><p>So far, most developed economies have held up better than expected this year. Looking to Europe in particular, everyone was anticipating a struggle heading into the winter months and a recession was definitely the base case scenario after. But they have managed to navigate their way away from such a predicament.</p><p>In the UK, the cost-of-living crisis continues to be a worrying factor but the fact that economic conditions haven't worsened dramatically has been reason enough for the BOE to keep going. However, stagflation risks are rising now and there is a narrow path for the central bank to navigate through in order to engineer a soft landing from this point onwards.</p><p>Those were the two major economies with the most dire outlook in my view and they have held up fairly well. That has allowed European equities in particular to be a massive outperformer this year. For some context, the DAX is up over 15% year-to-date and the CAC 40 is up over 14% during this period as well.</p><p>So, to answer the question about global growth worries, it is a resounding no – that markets are brushing away the pessimism for the most part.</p><p>But to be fair, we have seen economic data come in much better in the first five months of the year. There was a bit of a poor showing in Europe for June, and that prompted a bit of a selloff two weeks back.</p><p>However, that was quickly brushed aside last week and the losses were pared as markets are continuing to bask in the optimism instead.</p><p>In the US, the AI boom continues to carry tech stocks and they have come to life over the last two months especially. Can that keep up towards the second-half of 2023?</p><p>I think the way markets are taking to interest rate hikes and tighter credit conditions is that until something else breaks, it is fine to carry on as it is since the data is still looking good. The banking crisis should have been a cautious warning but it has pretty much been forgotten by now. That speaks to what market players are seeing, or at least what they want to see.</p><p>As such, as long as economic data continues to point to less harsh conditions, we can all take in a soft landing. That especially as major central banks are already looking to stray away from the tightening path.</p><p>So, unless there is another looming crisis, it's tough for markets to be fearful unless the data says otherwise.</p><p>For me, the dark horse to watch out for in all of this is China. Typically, what bodes ill for China will eventually spill over to many other parts of the world. And currently, we are seeing demand conditions struggle heavily and officials are trying a multitude of options to try and revive that.</p><p>In due course, that could have a more pertinent impact on global markets but at least for now, traders and investors aren't too perturbed. But if China's struggles don't show any turning point in the next year or so, that could lead to stronger worries about a drag across the globe at some point.</p><p>TLDR: What matters is what markets think. And they are saying that unless economic data shows signs of weakness, there is reason to stay optimistic (that is until something else breaks again). The AI boom is also an outlier for tech stocks in particular. While not a big worry yet, keep an eye out for China on any spillover effects to other economies and global sentiment.</p>

This article was written by Justin Low at www.forexlive.com.