“A global recession is an extended period of economic decline around the world” (Halton, 2021), often linked with multiple national economic declines. In recent years, the world has been experiencing unprecedented events such as the pandemic and Russia’s invasion of Ukraine. This led to the highest level of inflation in four decades due to disrupted supply chains and soaring consumer demand for goods, ultimately raising the chances of an inflation-driven global recession.
It has been indicated that the growth of the three largest economies of the world – the US, China, and the Eurozone – have been slowing down. Consumer confidence is also under critical conditions, “[dropping] more sharply than in the run-up to previous global recessions” (Reuters in Washington, 2022). Being under these conditions can lead to devastating consequences in emerging markets and developing economies.
As an attempt to control this global phenomenon, multiple central banks have simultaneously raised interest rates. On the other hand, banks have stated that this action might not be enough, since the inflation rate would still stay around 5% in 2023 – double the percentage levels seen before the pandemic. Consequently, one of the solutions left to control inflation is to raise interest rates by additional 2% points, which together with current market stress would result in the slowing down of global gross domestic product (GDP) to 0.5% in 2023, meeting the technical definition of a global recession, one of two consecutive quarters of negative growth in real GDP (RBA).
The potential global recession of 2022 will be different from the past credit-driven recessions that the world has experienced, such as the Great Recession. Even though the current world has its fundamentals better established, where housing and automotive industries are strong, and the labor market remains robust, Forbes has said that “2022 has been worse for investors than 2008” after comparing factors such as inflation rates (CPI) and the stock market (Curry, 2022).
In sum, there is the chance that “a recession today is likely to be less shallower and less damaging to corporate earnings than recent downturns'' (Shalett, 2022), but the poor relationship between the US and China, for example, indicates fading global cooperation, that will most likely set greater obstacles.
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