Is the World Heading for an Economic Recession?

The Covid pandemic caused high inflation, massive job losses, and slowed economic growth of 4.4% in 2020 which outdid the Great Depression. Nevertheless, experts were confident of a relatively quick return to normal from this recession. However, this was not to be due to four simultaneously occurring factors. The war in Ukraine sparked off sanctions with spin-off effects that had the US Federal Reserve responding over-enthusiastically. The need for the EU to forego Russian oil has caused its cost of living to dip dangerously low. China’s growth has been restricted by its Omicron lockdown. Ukraine and Russia have not delivered wheat to many countries dependent on this resource for survival. We look at the likely impact of these interactive events on the global economy.

Investments

Nervous investors are well-advised to keep up with the latest forex news and get advice from their broker before making a move. The current scenario has many investors running scared and selling up their commodities at discounted prices. This offers a prime opportunity for those with the wherewithal to take advantage of this trend. After all, a famous saying in the financial market is “the time to buy is when there’s blood in the streets”, in what is known as Contrarian investing. While it could take years for the situation to turn around, this may be the time to hold or buy.

Critical Shortages

The EU cost of energy and food has spiked at the expense of consumer spending with Russia refusing to supply them with gas. Supply chains that were disrupted by the pandemic have worsened with China’s lockdown and Russia going to war.

The US has seen a reverse in the yield curve, typically viewed as evidence of an approaching recession. Some predict the stock market will collapse. Its GDP decreased by 1.4% and inflation has risen across the globe. Excess dollar printing has exacerbated the US situation.

Ukraine could not plant its wheat harvest due to the war and Russia has stalled the distribution of existing produce. Russia and Ukraine are major world suppliers of wheat, essential metals needed for secondary industries to run, petroleum, and neon gas to produce chips.

The UNDP forecasts an income loss of $220 billion for developing countries. Additionally, 207 million more individuals will be cast into extreme poverty, with the total of starving people exceeding one billion. A further 95 million world citizens are expected to be undernourished.

World Recession?

The pandemic resulted in the biggest world recession after WW2. Russia’s war on Ukraine, and other factors, place the world at risk once again.

Before the war, the World Bank (WB) anticipated growth of 4.1% for 2022. Now it expects a drop to 2.9%. The WB stated categorically that a global recession is unavoidable. It also foresees the likelihood of a repeat of the stagflation of the seventies. This is characterised by high prices and inflation combined with decreased economic growth, where inflation fails to counteract the downswing.

Some economists believe that a recession now would not be as severe as the market crash in 2008. However, for those caught in its tentacles, this is not encouraging.