- A US recession, especially if triggered by a cycle of interest rate rises by the Fed, would curtail global import demand and lead to chaos in the markets.
- Clearly, emerging markets and poorer developing economies will suffer mightily in the event of a global recession.
- Record-high inflation does not make things any easier.
Is the global economy heading for a perfect storm, with Europe, China, and the United States all experiencing downturns later this year? The chances of a triple global recession are increasing by the day as reported by The Guardian.
Increasing consumer prices
A recession in Europe is almost inevitable if the war in Ukraine escalates, and Germany, which has been fiercely resisting calls to pull the plug on Russian oil and gas, finally relents.
In fact, the Chinese economy may already be in recession.
And with US consumer prices currently increasing at their fastest rate in 40 years, prospects for a soft landing for prices without a big hit to growth look increasingly remote.
Private and official economic forecasts have recently started to highlight growing regional risks but perhaps understate the extent to which they multiply each other.
Widespread lockdowns in China, for example, will wreak havoc with global supply chains in the short run, rising inflation in the US and lowering demand in Europe.
Normally, these problems might be attenuated by lower commodity prices.
Quarantine centres
China’s growth trajectory has long been slowing, with only a combination of luck and mostly competent macroeconomic management preventing a severe downturn.
There, the government is spending massive sums to convert empty downtown office buildings into quarantine centres.
Perhaps China’s leaders know something their western counterparts don’t about the urgency of preparing for the next pandemic, in which case the quarantine centres could look positively visionary.
True, the US government appears to be scaling down its stimulus policies, but that will increase recession concerns even if it helps mitigate inflation somewhat.
And if stimulus programmes continue full throttle – and, in an election year, why would they not?
Risks and vulnerabilities
As for Europe, blowback from economic slowdowns in China and the US would have threatened its growth even without the war in Ukraine.
But the war has greatly amplified Europe’s risks and vulnerabilities.
Meanwhile, European governments are under considerable pressure to increase significantly their spending on national defence.
Clearly, emerging markets and poorer developing economies will suffer mightily in the event of a global recession.
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Source: The Guardian
