There is a potential for a global economic recession, a significant slowdown or a massive contraction in economic activities, in 2023. There is a rapid deterioration of growth prospects, though there is a blistering economic recovery from pandemic shutdowns in many countries. Several organizations including the World Bank and the IMF have forecast lower growth. The IMF projected that global growth will fall to 2.7 percent in 2023, with a 25 percent probability of its falling below 2 percent. At least, one-third of the global economy, which has notably contracted and is now in its steepest slowdown following a post-recession recovery since 1970, is also expected to possibly face an economic recession in 2023 or the next year.
Global economic recession may not be surprising since there are economic and fiscal management based, geo-economic based, geopolitical and other causes and threats. Rising inflation across countries (driven by several causes especially rising food prices and energy costs), the slowdown of the global economy especially major economies, the Russian invasion of Ukraine and tightening financial conditions in most regions are several important causes. With higher-than-expected inflation especially in the United States and several European countries, global financial conditions are becoming tighter. China’s economic slowdown is also worse than anticipated due to the lockdowns and other factors including the Ukraine war. Hopefully, there may not be, according to available sources, a significant price rise because of falling energy prices, easing of supply snarls and a decline in shipping costs.
But inflation can still be a significant cause for concern for many countries, even if it is expected to come down in several leading economies including the United States and several European countries, and may affect the economy of many countries. Notably, the most far-reaching sanctions regime and the unpredictability of energy costs are significant threats. In addition to the Russia-Ukraine war, other military and geo-political tensions including the US-China tension over Taiwan, the world’s top semiconductor manufacturer, and rising tension in the Korean Peninsula are likely to remain among the biggest risks and cause supply chain disruptions and price increase. Thus, though energy price remains under control and a global economic recession does not occur, many countries may at least face some forms of economic crisis.
Definitely, different counties have taken efforts to mitigate economic threats including rising inflation. According to available sources, central banks of many countries including the United States and Brazil have increased interest rates to curb the rising inflation and got some positive outcomes. But, as is concerned, long-term high interest rates can lead to several negative outcomes including high unemployment and a recession. The European Union, one of the largest economies, has reduced its energy crisis with supplies from alternative sources that may help to keep its economic activities on track. The potential for talks about ending the Ukraine war has also increased, though it still seems dim, meaning that the possibility of the reduction of economic threats put forth by the Russia-Ukraine war remains.
But to prevent the potential global economic recession and reduce the impacts of economic crisis, economic and other threats and challenges need to be addressed with planned efforts. But effective efforts to control inflation are important in many countries for preventing the potential economic crisis in the world. Of course, well-devised responses from central banks and fiscal plans of policymakers are imperative in this respect. It is, furthermore, important to make policy efforts to ease supply chain constraints that confront energy markets and lead to food shortages and price increases and keep the energy and food prices at a tolerable level across countries. Capital allocation, additional investment and improved productivity may also be crucial for economic growth.
It is definitely important to mitigate geo-economic and geo-political causes to prevent the potential global economic crisis. For this, it is imperative that the emphasis is given to talks-based measures for the resolution of the Russia-Ukraine crisis. To make effective and planned efforts, it is important for all countries, including emerging markets and developing economies that can possibly face more devastating consequences of the potential economic crisis, to identify threats to their economies. Both domestic and international efforts may be needed to reduce the impacts of the potential crisis especially in those countries where they can be more. An emphasis also needs to be given to the living standards of people across countries.
