- Six major economies will join the U.S. in falling to recession in the coming year, according to new research by Nomura.
The euro area, the U.K., Japan, South Korea, Australia, and Canada will also see economic growth contract, economists led by Rob Subbaraman wrote in a note. Tightening monetary policy, faster inflation, and worsening financial conditions are the main reasons for the downturn, they said, in an article published in Barron’s.
A surge in commodity price
Furthermore, the world economy’s “synchronized growth slowdown” means that countries won’t be able to rely on exports to pull them back into expansion.
China, the world’s second-biggest economy, may avoid another economic contraction after emerging from one in the second quarter of this year. The recession in the U.S. and the euro area will start in the fourth quarter, the team of economists wrote.
Central banks, led by the Federal Reserve, will remain focused on bringing down inflation even if it sacrifices economic expansion. Inflation will nevertheless remain sticky as price pressures have broadened after a surge in commodity prices.
Fed rate cut
“We expect central banks to err on the side of tightening too much than too little in order to regain their credibility,” the note said. After raising the key rate as high as 3.75% in February, the Fed will start cutting rates by 0.25 point a meeting starting in September 2023. The Nomura economists’ forecast also includes rate reductions from Australia, the U.K., Canada, South Korea, and the euro area.
Did you subscribe to our daily Newsletter?
It’s Free! Click here to Subscribe