The risk of global recession

global recession
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global recession

Hamzeh S. Al-Alayani

The writer is a board member of a Jordanian public-sector government investments management company and a regular commentator on regional energy and industrial matters.

The slowdown in the global economy affects all regions. The United Nations Conference on Trade Development (UNCTAD) projected that this year’s global growth rate of 2.5 percent will slow to 2.2 percent in 2023. This situation will leave a cumulative shortfall of more than $17 trillion, close to 20 percent of the world’s income. Therefore, countries need to act quickly to address their weaknesses, protect their economies, and benefit from their capacity to recover.اضافة اعلان

The war in Ukraine, China’s draconian pandemic policies, and runaway inflation clouded the economic outlook. The US Federal Reserve is raising interest rates so aggressively that the world’s most important economy tips into recession.

UNCTAD points out that the continued increase of interest rates by the central banks of developed countries, such as the Fed and the European Central Bank (ECB), carries the risk of pushing the global economy into recession and prolonged stagnation.

As outlined by the IMF, the prospects for the global economy are the third weakest since 2001, behind only the 2008 financial crisis and the worst phase of the coronavirus pandemic. Global growth has fallen below 2 percent just five times since 1970. Global inflation will rise from 4.7 percent in 2021 to 8.8 percent this year. The forecast is that will fall back to 6.5 percent in 2023 and 4.1 percent by 2024.

The world’s three largest economies, the US, China, and the euro area, have been slowing sharply. Under the circumstances, even a moderate hit to the global economy over the next year could make it tip into recession. However, this time there is no subprime mortgage problem.
The next recession is more likely to see general business and consumer pullbacks that feed on each other, rather than the financial panic of 2008.
Most US banks’ strong housing markets are not at extreme valuations. European banks still have some issues, but the likelihood of bank failures is low, with European Central Bank (ECB) rates at zero. Moreover, unlike the US and China, Europe has entered an impressive deleveraging phase.

The next recession is more likely to see general business and consumer pullbacks that feed on each other, rather than the financial panic of 2008.

Food and energy are the main drivers of this inflation. The average contributions from food exceed the overall average inflation rate during 2016-2020. In other words, food inflation has eroded global living standards at the same rate as inflation of all consumption did in the five years before the pandemic.

The World Bank estimates that the pandemic pushed around 70 million people into extreme poverty in 2020, the most significant one-year increase since global poverty monitoring began in 1990, while an estimated 719 million people were subsisting on less than $2.15 a day at the end of 2020.

A similar story holds for energy costs, directly and indirectly through higher transportation costs. The downstream industry is facing a dual challenge trying to deliver energy security alongside energy transition, while coping with rising costs due to the energy crisis.

Furthermore, the fraction of countries tightening fiscal policies will reach its highest level since the early 1990s, which could amplify the effects of monetary policy on growth. Policymakers should also work to come up with credible medium-term budgetary plans and provide targeted relief to vulnerable households.

Under current supply chain challenges and rising uncertainty, where monetary policy alone cannot safely lower inflation, pragmatism must replace ideological conformity in guiding the next policy moves.

Countries need innovative governance that accelerates structural reform to bolster economic growth while transforming economies to manage the risks and become more resilient, sustainable, diversified, and inclusive.

Governments should focus on alleviating global supply bottlenecks through public and private investments in economy, climate change, technological advancements, and social infrastructure. These investments will maintain macroeconomic stability, boost employment, raise productivity, improve energy efficiency and reduce greenhouse-gas emissions.

Energy needs to be secure, affordable, and managing low carbon, despite the volatility in prices, policy and supply.


Hamzeh S. Al-Alayani is a board member of a Jordanian public-sector government investments management company and a regular commentator on regional energy and industrial matters.


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