Recession
- A growing number of people think that there won’t be a global recession and that some of the biggest economies in the world, like the US and the Eurozone, might have a soft landing.
What Is a Recession?
- Recessions are defined as severe, widespread, and sustained declines in economic activity. A conventional rule of thumb is that two consecutive quarters of negative gross domestic product (GDP) growth indicate a recession, even though more intricate calculations are frequently used.
- Recessions are defined as significant, broad, and protracted declines in economic activity. Economists determine the length of a recession by measuring it from the high point of the prior expansion to the low point of the downturn. Even while recessions may only last a few months, it may take years for the economy to recover and return to its pre-recession high.
- An inverted yield curve accurately predicted each of the last 10 recessions, though some of them never materialised.
Current state of the world:
- The world economy had a terrible year the year before. Global researchers forecast that some significant economies will undergo a recession in 2023 by the end of 2022.
- By the time the most significant CEOs, decision-makers, and economists assembled for the World Economic Forum (WEF) in Davos earlier this month, the mood had started to change.
- People are increasingly of the opinion that there won’t be a global recession and that some of the world’s greatest economies, such as the US and the Eurozone, may undergo a gentle landing.
What changed?
- During the same conference, IMF managing director Kristalina Georgieva offered an explanation for this anomaly. The forecast for global economic development is better than we thought it would be two months ago, but “better” doesn’t always follow from “less dire.” She then listed four other contributing factors. First, inflation is steadily declining and has gone below its historical high. Second, the growth prospects for China, the second-largest economy in the world, have improved. Due to its Zero Covid policy, China’s growth rate fell below the global average growth rate in 2022 for the first time in forty years. However, it is projected that China’s economy would recover and help global growth as it becomes more open to commerce. Third, it was widely believed that as central banks raised interest rates, the jobless rate would rise in industrialised countries. but not to the extent that economists and policymakers had anticipated. In reality, the industrialised countries continue to have record-low unemployment rates. The fourth and most important component is the ongoing consumer demand. Georgieva claimed that strong labour markets, or low unemployment rates, had maintained strong consumer demand in countries like the US.
There won’t be a global recession, right?
- Georgieva cited three key factors that could jeopardise the newly emerging confidence.
- First, whether inflation will continue to decline is questionable. For instance, while China’s prospective recovery is seen as a positive development, it may also portend increased gas and crude oil prices, which would raise overall inflation. The cost of energy is still very high. Two: Despite the fact that labour markets have held up well thus far, it is likely that, if central banks continue to raise rates, rising interest rates will start to bite and lead to higher unemployment. Dealing with the cost of living crisis is one thing in wealthy countries with historically low unemployment; nevertheless, if widespread job losses take place, consumption would fall swiftly and, with it, economic progress. Last but not least, because it has not yet been addressed, the ongoing conflict in Ukraine poses a risk to investors everywhere.
