The Global Refinancing Challenge Ahead
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Gusts of Growth
The global economy is currently basking in an unexpected glow, defying gloomy predictions of a downturn on the coattails of higher interest rates.
This unexpected resilience has sparked a wave of cautious optimism among investors and policymakers about what may lie ahead.
The Fragile Foundation
America’s economy kept roaring ahead in the third quarter with a robust 4.9% annual growth rate. But concerns persist that this growth may be on borrowed time.
Interest rates are at the crux of these worries. The Federal Reserve hiked interest rates to combat inflation, hoping not to hamper the willingness of American consumers to spend money and keep the economy growing.
For now, the Fed has kept rates steady, albeit promising that they would likely stay higher for longer. This is worrying economists, who believe that the high rate environment will eventually weigh on consumers and businesses so much that spending shifts and the economy has to suffer.
This isn’t just a trend in the U.S. The world economy is growing at an impressive rate, but the threat of sustained high interest rates, and higher cost of borrowing money, casts doubt on how long global growth can continue at the current pace.
Borrowing on the Brink
One major issue is the refinancing wall. With interest rates at their current levels, refinancing debt promises to be very pricey. And that could push the world economy to reverse course.
Central banks holding their ground have prompted a surge in long-term bond yields, making it more expensive for governments, including the U.S., to borrow. And it’s not just governments, of course. The same refinancing dynamics apply to the debt piles of companies, and personal debt of consumers. How the higher for longer interest rates will affect growth remains to be seen.
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