over 1 year ago • 3 mins
Not one, but two major intergovernmental economic organizations slashed their forecasts for global economic growth this week.
What does this mean?
The OECD and the World Bank weren’t exactly in good spirits when they last gave their 2022 forecasts in December and January, and it goes without saying that a lot’s happened since then. Just a recap in case you’ve been off the grid: the Ukraine war has driven up the price of energy and food across the world, while China’s zero-Covid policy has disrupted international trade. So things were only going to go one way: the OECD has now downgraded its global economic forecast from 4.5% to 3%, and the World Bank from 4.1% to 2.9%. Both of them put it down to skyrocketing prices, with the OECD even near-doubling its inflation forecast for its member countries in 2022.
Why should I care?
The bigger picture: Brits are in the…
As for next year, the OECD is expecting the global economy will grow just 2.8%. But its outlook for one country is particularly dire: the organization doesn’t think the UK economy will grow at all. That’s because its inflation rate is higher than most other advanced economies, meaning it’ll need to raise interest rates faster to keep prices under control. That and rising taxes will put a dampener on spending, which could cripple the UK’s growth. In fact, only Russia – hobbled by sanctions – is set to perform worse among the G20.
Zooming out: It could be worse.
The OECD did say that it was more hopeful that we wouldn’t see stagflation – the combination of high inflation, low growth – on the scale that we did in the 1970s, when an oil price surge led to runaway prices and severe unemployment. It pointed out that developed economies are driven more by services than by energy these days, while central banks – now mostly independent from governments – are freer to make tough decisions to tackle inflation.
Keep reading for our next story...
Inditex – the world’s biggest clothing house – announced on Wednesday that it finally made more in profit last quarter than it did before the pandemic.
What does this mean?
Let’s face it, the dream is over: you had no choice but to start wearing pants – or as we call them, leg prisons – once lockdowns came to an end. So you’ve been rushing in your droves to the likes of Massimo Dutti, Pull&Bear, and fast-to-market brand Zara, which helped parent company Inditex bring in 36% more revenue and 80% more profit last quarter than the same time in 2021. Demand was so high, in fact, that Inditex was able to navigate two potentially disastrous pitfalls. For one thing, it was able to offset the 24% rise in operating costs by upping its prices without losing customers. And for another, its strong showing in the UK, the US, and Europe made up for the closure of over 500 stores in Russia – its second-biggest market by real estate.
Why should I care?
Zooming in: If you can’t beat ‘em, buy ‘em.
Despite a tough time during the pandemic, Inditex has now amassed a cash pile of around $10 billion. And while hoarding cash has always been part of its playbook, analysts are speculating that it could be eyeing a big purchase in the form of struggling German online retailer Zalando. That could be a shrewd move, both because it would eliminate a competitor and allow Inditex to profit from the company’s digital know-how. It wouldn’t break the bank either: Zalando’s shares have halved in value since January.
The bigger picture: Inditex goes shabby chic.
Fast fashion and the environment aren’t exactly happy bedfellows, but Inditex is trying to change that: the company agreed last month to buy 30% of the recycled fiber produced by Finland’s Infinited Fiber Company for three years in a deal worth $100 million. It’s all part of a broader push toward more sustainable materials that should see Inditex making outfits entirely out of clothing waste from 2024.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.