A cyclist in yellow jacket passes an empty retail space on Oxford Street in London, Wednesday, Nov. 16, 2022. Britain's inflation rate rose to a 41-year high in October, fueling demands for the government to do more to ease the nation's cost-of-living crisis when it releases new tax and spending plans on Thursday. The Office for National Statistics says consumer prices rose 11.1% in the 12 months through October, compared with 10.1% in September. The October figure exceeded economists expectations of 10.7%. (AP Photo/Alastair Grant)
Hobbled by high interest rates, punishing inflation and Russia’s war against Ukraine, the world economy is expected to eke out only modest growth this year and to expand even more tepidly in 2023.
That was the sobering forecast issued Tuesday by the Paris-based Organization for Economic Cooperation and Development. In the OECD's estimation, the world economy will grow just 3.1% this year, down sharply from a robust 5.9% in 2021.
Next year, the OECD predicts, will be even worse: The international economy will expand only 2.2% in 2023, it estimates.
The OECD, made up of 38 member countries, works to promote international trade and prosperity and issues periodic reports and analyses. In its latest forecast, the organization predicts that the Federal Reserve’s aggressive drive to tame inflation with higher interest rates — it’s raised its benchmark rate six times this year, in substantial increments — will grind the U.S. economy to a near-halt. It expects the United States, the world's largest economy, to grow just 1.8% this year (down drastically from 5.9% in 2021), 0.5% in 2023 and 1% in 2024.
That grim outlook is widely shared. Most economists expect the United States to enter at least a mild recession next year, though the OECD did not specifically predict one.
The report foresees U.S. inflation, though decelerating, to remain well above the Fed’s 2% annual target next year and into 2024.
The OECD's forecast for the 19 European countries that share the euro currency, which are enduring crippling energy shortages from Russia's war, is hardly brighter. The organization expects the eurozone to collectively manage just 0.5% growth next year before accelerating slightly to 1.4% in 2024.
And it expects inflation to continue squeezing the continent: The OECD predicts that consumer prices, which rose just 2.6% in 2021, will jump 8.3% for all of 2022 and 6.8% in 2023.
Whatever growth the international economy produces next year, the OECD says, will come largely from the emerging market countries of Asia: Together, it estimates, they will account for three-quarters of world growth next year while the U.S. and European economies falter. India’s economy, for instance, is expected to grow 6.6% this year and 5.7% next year.
China's economy, which not long ago boasted double-digit annual growth, will expand just 3.3% this year and 4.6% in 2023. The world’s second-biggest economy has been hobbled by weakness in its real estate markets, high debts and draconian zero-COVID policies that have disrupted commerce.
Fueled by vast government spending and record-low borrowing rates, the world economy soared out of the pandemic recession of early 2020. The recovery was so strong that it overwhelmed factories, ports and freight yards, causing shortages and higher prices. Moscow's invasion of Ukraine in February disrupted trade in energy and food and further accelerated prices.
After decades of low prices and ultra-low interest rates, the consequences of chronically high inflation and interest rates are unpredictable.
“Financial strategies put in place during the long period of hyper-low interest rates may be exposed by rapidly rising rates and exert stress in unexpected ways,’’ the OECD said in Tuesday's report.
The higher rates being engineered by the Fed and other central banks will make it difficult for heavily indebted governments, businesses and consumers to pay their bills. In particular, a stronger U.S. dollar, arising in part from higher U.S. rates, will imperil foreign companies that borrowed in the U.S. currency and may lack the means to repay their now-costlier debt.
This article presents seven large-cap stocks that are regarded as cheap based on their price-to-earnings ratio. The price-to-earnings ratio tells an investor how much they are paying per share for every dollar of a company's profit.
You can find a stock's P/E ratio by dividing its stock price by its earnings per share. That looks like this:
P/E Ratio = Stock Price/Earnings per share (EPS)
For example, if a company is reporting earnings of $3 per share and their stock is selling for $30 per share, the P/E ratio is 10 ($30 per share/$3 per share). Many investors will look at a benchmark index like the S&P 500 as their guide for defining if a company's P/E ratio makes a stock cheap or expensive. At the time of this writing, the average P/E ratio for stocks in the S&P 500 was 14x to 17x. That is the range we're using for determining if a stock is cheap.
Of course, what is considered a “good" P/E ratio may depend on the market sector. For example, technology stocks tend to have a higher P/E ratio than the S&P average because they are projected to have stronger earnings and stock price growth than the broader market.
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