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  • Writer's pictureAlly Finkbeiner

Forecasting a Global Recession?

Russia’s war in Ukraine, increasing energy prices, and the lasting impacts of the Covid-19 pandemic continue to be the culprits behind global economic trends, with high inflation rates being the headline for another month. New projections from around the world agree that global GDP growth is continuing to slow and will likely do so through 2023. Is a global recession inevitable?

The Organization for Economic Cooperation and Development recently scaled back their growth projections for next year. They now forecast a weak 2.2% global growth in 2023, down from their earlier estimate of 2.8%. The O.E.C.D. also predicts lower growth in virtually all of the world’s advanced economies—Europe being the most vulnerable region— with China expected to face their lowest growth since the 1970s and the United States forecasted at a weak 0.5%. Though, they have yet to sound the alarm on a global recession.

Other organizations have not shied away from such claims. The World Bank predicts that even a moderate hit to the global economy in the next year could send us into a recession, with president David Malpass citing prolonged stagflation as the cause. The current slowdown is the steepest faced following a post-recession recovery since 1970, and the inflation rate worldwide is expected to remain near 5% in 2023, which is double the rate pre-pandemic. The interest hikes being enacted simultaneously by central banks across the world in an effort to thwart inflation are only going to continue slowing GDP growth.

Similarly, the World Economic Forum sees a global recession as increasingly probable, with seven out of ten experts from their Chief Economists Outlook report considering the possibility as at least “somewhat likely”. At the very least, growing inequality between and among countries is expected, with food security on the line and the potential for heightened social unrest present across the globe.

As explained by University of Cambridge economist Mohamed El-Elrian, three major trends have brought us to this point at which a global recession is on the horizon. First, the restrictive policies of central banks who are trying to address inflation in their countries, namely by increasing interest rates. Second, the overall decline in growth as the powerhouse economies of the United States, China, and Europe continue to lose momentum. Finally, the general global deflationary trend of the last few decades, which was spurred by increased cooperation, has been recently hindered by geopolitical tensions.

In order to prevent a global recession, Malpass of the World Bank urges countries to pursue alternative methods of inflation reduction outside of the traditional interest hikes we’ve seen. Increased fiscal efficiency and improved allocation of global capital may provide the solution we need to prevent developing nations from undergoing crises that would damage their economies for years to come.

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