Deflation In 2023: Another Recession on Its Way
Will There Be Deflation In 2023?
The past few months have seen the financial market go on a bearish trend after the 0.25% interest rates hike by the Federal Reserve Bank. The continuous bearish trend increases the possibility of deflation in 2023. In addition, some people are of the view that the Russian-Ukraine conflict is going to impact the price of commodities and durables.
However, the current situation showcases the world is urgently looking for other possible countries to cover up the deficiency of wheat and oil. Moreover, the war sanctions on Russia have forced it to cut the oil supply to NATO and its allies, increasing the pressure on OPEC.
Regardless of these factors, the oil demand has been decreasing, and the prices per barrel have decreased sharply over time. Given these consequences, market data analysts are predicting a huge deflation in 2023, like the “Great Recession” in the first decade of the 21st century.
Financial experts are comparing the current bearish trends of the financial markets with that of the Great Recession. Therefore, they are adamant that the world should brace itself for a deflationary market trend in the following year.
The demand for durable goods, food, energy, chips, and other necessities will drop significantly. Resultantly, it will plummet the financial cycle of production organizations, creating another sinkhole of recession.
What Factors Are Most Likely to Cause Deflation?
A ton of regional and global factors contribute to a deflationary market trend. However, there are greater powers at play when controlling the different trends of the financial market. Let us overview these key factors contributing to the market trends (inflation and deflation).
Fluctuation In Oil Supply From OPEC
The Russia-Ukraine conflict has changed the dynamics of the oil market significantly. The west and the European countries have bombarded Russia with financial sanctions. Countering the measures, Russia has curtailed the oil supply to European countries.
It has created a loophole between supply and demand in the oil market. In this scenario, western countries look forward to OPEC covering the oil deficiency. However, things have become more turbulent after the de-facto leader of OPEC, Saudi Arabia, announced a cut in oil production goals.
This move has given significant leverage to sanctioned-hit Russia and has irked the western nations, particularly the USA, which has been a long ally of Saudi Arabia. Amid this supply cut, the demand is also decreasing in a reversal of market trends.
This inappropriate supply and demand trend has reduced oil barrels’ prices. With the Arab nation in favor of Russia, it is evident that the demand and supply will keep fluctuating next year (2023). Thereby, financial experts are estimating probable deflation in the market.
Global Chip Production
Over the past few years, global chip production has hit the bottom of the graph with a decrease of 16% in annual production. This has divulged in a sharp increase in the prices of automobiles and electronics. The vehicle manufacturing industry curtailed the losses from chip production by increasing the prices of auto units.
However, as we are nearing the edge of 2022, global chip production is recovering rapidly. As a result, the gap in the supply and demand of these computerized silicon chips is decreasing. Thus, the prices of automobiles and other electronics industries are expected to fall sharply in 2023.
That will result in a possible deflation when the supply exceeds the demand requirements of the consumers. Therefore, the recoil of chip production is a possible indicator of deflation in the upcoming year.
Real Estate Sector and Deflation
The housing sector price chart has been on a bullish trend ever since the Covid-19 pandemic in 2019. The prices are surging high amid the increasing demand for construction materials. However, it is also expected to fall aggressively in the year 2023, when the demand for the housing sector will see high curbing.
Market pundits have estimated that the demand for housing units is set to decrease by 10% in 2023. Such a huge decrease in demand will prompt the real estate market to take a bearish dive and get onto the line of deflation. The mega real estate firms will be at the receiving end of the deflation flake.
Is Recession Evident After Deflation in The Preceding Year?
Recession, per financial terminology, is a significant drop in economic activity. That drop in the economic spectrum will disperse the market forces and may put mega-corporations on the brink of default. During the Great Depression, the world witnessed billionaires turning into millionaires in a short period.
The recession is the outcome of the deflationary market trend. Therefore, a recession is sure to happen when the market trends are continuously on a bearish pattern. Using the tramline trading method, you can have a broader image of the upcoming global economics. The tramlines showcase a highly probable future trend in the financial markets.
The traders, investors, producers, and consumers can have the best possible estimate from these tramlines. Resultantly, they can brace themselves for the possible deflation that will change the course of world economics.
Deflation: The Crux
The balancing aspect of economics is when the inflation and deflation rates are balanced. In such scenarios, the consumers and the producers are in a win-win state. Therefore, deflation is a direct recessive blow to the financial markets.
The traders have to change their strategies per the deflationary trends of the market. Therefore, the tramline trading methodology will help traders review their trading strategies comprehensively.