„First of all, fears about the future have jumped to their highest level in four years—more than they were even on 24 February 2022. The reasons are several: fears of a direct war between Israel and Iran and the possibility of a US recession due to economic stagnation. In parallel, oil shot down to $75 (chart below), and the US grew faster than expected in the last quarter.
Gold is also down, but there is a fear of instability, which seems strange. It's a strange Monday,“ Dubnikovas commented on Facebook.
Izgorodinas also wrote about it on social media on Monday. „Recently, the financial markets in the US (and not only) have been in a state of panic – the markets are worried that the US central bank is late in cutting interest rates and that the American economy is about to fall into a recession,“ he noted.
According to Mr Izgorodinas, several indicators point to an imminent economic slowdown in the US, one of which is the so-called „Sahm rule“, which is linked to an increase in the US unemployment rate.
„Has the US labour market performed poorly?“ he asks rhetorically. – No, and the whole point is in the details. Of all the US labour market indicators, the change in full-time employment and the change in the number of workers in US road transport companies have the most vital relationship with US GDP. I want to point out that these indicators have performed well, i.e. they do not indicate a significant deterioration in the US labour market. This means that some one-off factors substantially impacted the increase in the US unemployment rate, which the market was so frightened about. The following US labour market indicators could be significantly better.“
Even though the US economy may be slowing down, there are a few things to remember: the US central bank has enormous room for manoeuvre to cut base rates, which are currently at 5.5%, and whichever candidate wins the US presidential election, the US is facing a new wave of growth in public spending.
There is also the risk of a hasty reaction by central banks. As the economist explained, central banks panicked the markets, cutting interest rates quickly and starting to stimulate. „In that case, we would be facing another wave of inflation. It is essential that central banks assess the situation adequately and do not panic,“ he assured.
„How will the turbulence in the US economy affect the Lithuanian economy? Theoretically, badly, but practically, not necessarily. The main risk is for the exporting sectors, i.e., industry. But in practice, turbulence in the US economy is not only a risk for our industry but also an opportunity. As the US economy slows down and the German industry slows down even more, German manufacturers will be more inclined to open up their value chains and give more orders to Lithuanian manufacturers.
This is already happening – the performance of the Lithuanian industry contrasts sharply, in the best sense, with the decline in production in Germany. Lithuania's economy and exporting sectors are maintaining their competitiveness so that we can use the market turbulence to our advantage – we have all the instruments to do so. Still, the most important thing is for businesses not to panic and to keep their wits about them,“ Izgorodinas wrote.
