Concerns about a recession in the US appear to be gradually subsiding, or at least weakening significantly. Interest rate trends at the long end in the USA in particular show a significant increase. Interest rates for 10-year US government bonds have risen from 3.73% to 4.04%. At first glance, a 0.31 % rise in interest rates may not sound like much, but this increase has led to price losses of 3.5 % for these bonds since August.
A possible recession could provide an opportunity for a “risk-off” scenario in which investors avoid riskier assets. In recent weeks, some currencies that typically come under pressure in such phases have therefore already recorded losses. I do not expect any significant improvements in global conditions in the fall, but do anticipate a “surprising improvement” in the global economy in the coming year.
USA and China Drive
As I described in my book “The Coming Roaring Twenties”, neither the US nor China will be able to avoid further stimulating their economies. In China, people waited a long time after the coronavirus crisis and despite a deep real estate crisis. Now that the hoped-for growth is failing to materialize and the mood among the population is threatening to tilt, significant economic measures are being introduced.
In the USA, on the other hand, extensive government stimulus has been in place since the 2008 financial crisis. Government debt has increased sevenfold since 2000, while gross domestic product has “only” risen 2.5-fold. Fiscal debt will continue to rise in both the USA and China in the coming years and will reach its limits at some point. Investors will price in higher risks, which is likely to lead to rising costs for new debt.
Opportunities for CEE Countries
The countries of Central and Eastern Europe (CEE) are closely linked to the West, but at the same time maintain their relations with China, such as the Czech Republic and Hungary. While the long-term effects of this geopolitical balance cannot be clearly foreseen, the CEE countries could benefit from the expected improvement in the global economy in the coming year. In particular, the recently weak currencies in this region, which are currently in oversold territory, could recover in the next two quarters.
It is currently difficult to predict whether the Polish zloty will also benefit from this development. While the zloty has been relatively stable in 2024, further strengthening is only likely to be possible if the US dollar weakens across the board – which is not expected in the next two to three months. However, a significant weakening of the zloty is only to be expected in the event of another “risk-off” scenario.
