Is a global recession inevitable? what 4 economists think

More and more economists think a global recession is imminent.

The abundance of economic stimulus during the pandemic, supply chain bottlenecks from restrictions in China, and the Russian invasion of Ukraine, among other factors, have brought global inflation to levels not seen in decades.

To control this, central banks raise interest rates, while stock markets are reacting with prolonged dips, reflecting investors’ low confidence about what’s going to happen in the future.

• Why are tech companies suffering historic losses on the American Stock Exchange?
• How might the biggest US rate hike since 1994 affect Brazil?

And what awaits us, according to many experts, is a recession: a depression in economic activity that translates into a decline in GDP (Gross Domestic Product, the sum of goods and services).

Overall, after two consecutive quarters of GDP contraction, economists consider the economy to be in a “technical recession.”

According to a recent survey by the British Financial Times and the Booth Business School at the University of Chicago (USA), seven out of 10 economists in the United States believe this will happen this year or next.

The survey was conducted in early June, before a sharp drop in equities (June 6-10) and the last week of a new rate hike by the world’s central banks, so this rate is likely to rise.

Going into a recession has dire consequences: collapse of investment, consumption and transactions causes businesses to close, huge job losses, and the inability to pay off debts that could lead many to bankruptcy.

The BBC’s Spanish-language news service, BBC News Mundo, asked four leading economists whether they believe there will be a US and worldwide recession in the near future. Check what they said.

‘65% probability in 2023’

David Wessel, director of the Hutchins Center for Financial and Monetary Policy at the Brookings Institution (Washington DC)

“Forecasting recessions is a difficult exercise. They are often caused by unexpected shocks, and sometimes the economic depressions that experts later predict with complete precision do not happen.

However, I see a significant recession probability in the United States in 2023 with a probability of about 65%.

Reason? Federal Reserve Chairman Jerome Powell doesn’t want his legacy to destroy the progress his predecessors have made in reducing and keeping US inflation low.

For now, the Fed has to slow down demand, ease the upward pressure on prices, and help the inflationary psychology [estado mental que leva consumidores a antecipar compras, prevendo aumento dos preços] settle down.

At some point, however, the Fed will face much more difficult decisions, such as whether to continue raising interest rates or freeze them as the economy slows and inflation falls, but the 2% target is not met.

There will be good arguments for either option. Powell I predict the Fed will err on the side of overtightening rather than easing, and therefore a recession is likely, but moderate.

I hope I’m wrong, all issues in global supply chains will be resolved, the lasting economic effects of covid-19 will lessen, and we (and the Fed) will get the good fortune we need.

But I don’t think that’s the most likely outcome.”

‘Beginning of next year’

Gabriel Gasave, Research Associate at the Independent Institute’s Center for Global Welfare and Director of Independent.org (Oakland, California)

“I dare say that at some point, probably at the beginning of 2023, we will face a major recession in both Europe and the United States.

It won’t be because of the pandemic, disruptions in supply chains, Russia’s invasion of Ukraine, food shortages and rising energy prices.

Basically, it would be due to the fact that to express it in terms of the Austrian School of Economics. [linha de pensamento econômico liberal surgida em Viena, no século 19]The excess liquidity process directed by governments through strong monetary expansion will come to an end. Or ‘boom‘ it will end and depression will come

The Northern Hemisphere will continue with a reasonable level of activity for now, with the arrival of summer and the holidays.

During the pandemic and election campaigns, people will travel, spend and take advantage of the financial benefits, many of which are handed down by governments on the left and right.

But parties don’t last forever, just as no elite athlete can consistently perform under the influence of others. doping.

At some point, everything must go back to the way it was, the reality that many economists call depression, when in fact it is a return to the natural order of things.

It is also true that US debt yields are now increasing. [devido à alta de juros pelo Fed]international capital will have a greater appeal to return to the United States.

Therefore, we need to see to what extent the global capital flows that come with the appreciation of the dollar and the depreciation of other currencies affect the level of domestic activity. [dos EUA]”

‘Probably later this year’

Lindsey Piegza, Chief Economist and Executive Director, Stifel Financial (Chicago)

“The Federal Reserve renewed and increased its commitment to contain inflation, raised interest rates by 0.75 percentage points in June and discussed a possible 0.75 percentage point increase for July.

While US President Joe Biden recently announced that the Fed is not trying to start a recession, this rapid rate hike will likely produce a GDP decline or stagflation at best by the end of this year. [combinação de estagnação econômica ou recessão com inflação alta] at worst.

Consumers still suffer from high prices as supply chains continue to be affected and conflicts abroad persist. And now that the Fed is raising rates at the recommended rate of about 4% or perhaps more, they must also contend with the effects of a weaker economy.

A strategy of accelerating rate increases will impose a significant cost to the average citizen and the US economy more broadly and have limited impact on pressures. [inflacionárias] on the supply side.

At the end of the day, does raising the cost of capital reduce consumption and investment, which in turn reduces demand-side pressures? Is this already happening and is manifesting in a decreasing sales rhythm? but it is unlikely to fix supply-side constraints resulting from the consequences of Covid-19 or an international conflict.”

‘may not be’

Andrés Moreno Jaramillo, economist, independent financial advisor and stock market analyst (Bogota, Colombia)

“Some economists see that we are coming out of a recession from a very strong drop in interest rates, and they believe this cycle will come back. Sure, it’s possible, but unless geopolitics gets worse with more conflict,” there may be no more wars, no more famines, no more covid, no recession.

Not yet known. More precisely, it took a long time for the USA to raise interest rates in order not to cause a recession. At a time when the economy is heating up, these rising interest rates could lead to a minor recession.

If there is a recession it will be very mild and I believe they will put all the mechanisms in place to prevent it. There are many events, many geopolitical realities that can change any economic forecast, so you have to be very careful.

The economies of countries move in cycles. Both interest rates and recessions are part of these cycles, which are not serious as long as there is little volatility.

That’s what central banks and economic policy are for: all these cycles happen and the economy doesn’t grow too much, which can create inflation, or fall too low, which can cause unemployment, depression, and other consequences.

What we have just experienced with Covid-19 is something new in the world. Almost all countries have experienced economic downturns and recovery brings strong ups and downs; The volatility we mentioned, however, has gradually decreased.

I believe the worst is over and the US is facing inflation and inflation like everyone else. [o combate a] Even if GDP records negative figures, this inflation should curb growth and slow it down a bit. It’s not that bad.”

– This text was first https://www.bbc.com/portuguese/internacional-61958840