Permacrisis — Collins English Dictionary’s word of the year for 2022 — captured the economic environment for the period. The term referring to an “extended period of instability and insecurity” may well capture the atmosphere of this year as well.
The issues that caused concerns last year — inflation, slowing growth, geopolitical conflicts and business uncertainty, among others — still hang above the global economy’s neck like the sword of Damocles. A new ingredient has been added to the volatile mix in 2023: impending recession.
Recession fears are being felt around the world, thanks to a markedly unpredictable and volatile global environment. Because of growing inflationary pressures and higher interest rates by major central banks, Bloomberg Economics expects a worldwide growth of 2.4% for 2023. Barring the crisis years of 2009 and 2020, it says that is the slowest rate since 1993. Trade analysts say this would be the third-worst performance of the global economy in the past three decades, following the contractions of 2009 and 2020. The World Bank has said global gross domestic product would probably increase by 1.7% this year, about half the pace forecast in June. This even before a recession has set in.
The million-dollar question puzzling many economists the world over is are the current recessionary pressures strong enough to give a body blow to several already fragile economies?
A discussion on global economic slowdown cannot be complete without talking about the world’s largest economy: the US. According to a survey by The Wall Street Journal, most economists at 23 large financial institutions have predicted that a recession would hit the US in 2023 and that millions of Americans will lose their jobs. Two of the 23 firms expected the recession to come later in 2024. Five — Credit Suisse, Goldman Sachs, HSBC, JPMorgan Chase and Morgan Stanley — said the US would manage to avoid a downturn altogether.
To curb inflationary pressures, the US Federal Reserve had raised interest rates. The jury is still out on whether the move has achieved its goal. Industry circles are abuzz with the view that the Fed might raise rates again this year. “The Federal Reserve has hinted at a continued tighter monetary policy even in 2023, as the labour market remains strong and wage pressures could result in higher demand,” says Rumki Majumdar, Economist, Deloitte India.
Such a move can aggravate the risk of recession in several geographies.
At the recently held World Economic Forum meeting in Davos, central bankers in other developed economies have also said they would keep raising interest rates to battle inflation.
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