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GLOBAL RECESSION

INTRODUCTION

¿Did you know that we could be facing a global recession very soon? Warning bells are ringing
for the world economy due to high inflation, high interest rates and the war in Ukraine. The
only times we have faced such a high recession was recently in 2020 due to the pandemic and
during the global financial crisis in 2008 and 2009. According to U.S. economist Julius Shiskin
described a recession as "two consecutive quarters of declining growth," and many countries
continue to adhere to it (1974).

Rising interest rates and tightening fiscal policies in advanced economies, as well as the chain
crises caused by the Covid-19 pandemic and the war in Ukraine, have already turned the global
recession into a setback. During the ten years that interest rates remained at historically low
levels, central banks failed to achieve inflation targets and robust economic growth. Any belief
that they can lower prices through higher interest rates without a recession is a reckless
gamble.

The purpose of our essay is to show that we are close to a global recession, in which many
countries will not be able to avoid such a recession. Seven out of 10 economists surveyed by
the World Economic Forum think a global recession is at least somewhat likely, according to a
published report, have reduced their growth forecasts, and expect inflation-adjusted wages to
continue to fall for the rest of this year and into next.

In order to develop our purpose, we will analyze 3 important points for our topic. First, it is the
rise in inflation, with price increases reaching record highs in Europe and the United States.
Secondly, the unemployment rate in the world market has deteriorated according to the latest
ILO projections; it is likely that in the coming years it will remain difficult for much of the world
to return to pre-pandemic performance. Finally, the Ukraine war is hurting some EU
economies more than others.

DEVELOPMENT

1. The Inflation Rate

The world appears to be entering a phase of accelerating inflation not seen in recent years, the
global economy has experienced unprecedented inflation this century. According to the
International Monetary Fund's April 2022 forecast, inflation in the world may average 7% this
year. Due to the general rise in prices, emerging market and developing economies will suffer
the most, as their inflation is forecast at 8.7 percent.

Central banks around the world raised interest rates this year in a synchronization not seen in
five decades. However, tariffs and other policy measures currently planned may not be enough
to reduce global inflation to pre-pandemic levels. Investors expect central banks to raise global
benchmark interest rates by nearly 4% % by 2023, more than 2 percentage points above the
2021 average.

One of the world powers, the United States, saw its inflation rise to 7 percent in December
over the same period in 1982, the highest since 1982. In the euro zone, inflation was 5.1
percent in January, which is the highest since unified statistics became available in
1997.Federal Reserve Chairman Jerome Powell said the central bank will continue to raise
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interest rates to keep inflation under control, while Europe is struggling to cope with a large
increase. In fuel prices related to the Ukraine crisis.

I believe that the inflation we have been facing will lead to an economic recession that will
affect less developed countries outside the main centers of power, food prices have risen
sharply and the poorest are on the verge of starvation. In addition, the increase in interest
rates controls inflation, but at the same time slows economic growth, if the slowdown is too
great, the economy stops and increases the likelihood that the country will enter recession.

On the other hand, it is necessary to talk about China which is the second largest economy in
the world, business activity has been affected by Beijing's zero COVID policy, which has
quarantined dozens of cities for months and forced many companies to close. Chinese leaders
are reluctant to change this harsh policy for fear of triggering a major crisis. Add to that the
recent collapse of the real estate industry, which nearly bankrupted China Evergrande, one of
the country's largest builders. Chinese homebuyers defaulted on mortgages on unfinished
homes and bank lending to buy homes fell for the first time in a decade.

China's annual inflation was 2.7% in July, two-tenths higher than in June and the highest in two
years, the Asian giant's National Bureau of Statistics (NSO) reported. The acceleration in price
increases in China last month was mainly due to a 4.7 percent rise in food prices, with fruit up
16.9 percent and vegetables up 12.9 percent. However, pork prices increased the most, by
25.6 percent.

Unlike the EU and the US, where the consumer price index (CPI) was 8.5 percent in July,
China's inflation has been relatively subdued this year as strict control policies to contain
coronavirus epidemics and sporadic outbreaks have reduced consumer and business spending.
These spikes in infections, global headwinds and the ongoing housing crisis have kept China's
economic recovery fragile. Manufacturing activity unexpectedly contracted last month and real
estate prices continue to fall. The Asian giant, which accounts for 19% of world output, will
have a direct impact of its economic slowdown on the rest of the world and its importance as a
buyer of goods and services in other countries and for its central role in international trade
supply chains.

The rate of increase in the prices paid for goods and services has risen to levels not seen in
four decades. High inflation negatively affects purchasing power and makes it difficult to
purchase basic necessities such as food. Inflation also negatively affects the efficiency of the
economy, weakening overall growth. Likewise, a slowdown in growth in the world's largest
economies will affect the rest of the world, for example, a slowdown in China's economy could
further increase trade costs and global input prices, prolong supply delays and even
exacerbate production shortages in the United States and Europe. From a global demand
perspective, Chinese exporters may suffer, especially those with exposure to the construction
and metals sectors (i.e., Chile, Hong Kong, Peru, Australia and South Africa).

2. Ukrainian war

On Thursday, February 24, Russia began attacks on several Ukrainian territories, including the
capital, Kiev, starting the war, which is the product of a long-standing tension that has evolved
over the past few months and brought with it economic instability. The effects of the
Ukrainian-Russian war are affecting the economy, as it has caused energy prices to rise and
inflation is at the highest rates in history. In addition, these countries produce almost a third of
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the world's wheat and barley and are also exporters of metals. As soon as the Russian and
Ukrainian attack began, wheat and corn prices rose sharply.

Supply chains are being disrupted resulting in higher prices for some raw materials, food prices
and some basic services. According to the European Commission real GDP growth in both the
EU and the Eurozone is now expected to be 2.7% in 2022 and 2.3% in 2023, down from 4.0%
and 2.8%, respectively, according to the Winter 2022 interim forecast, this war affects some
EU economies more than others.

I believe that as rising prices continue to erode living standards around the world, curbing
inflation should be a priority for policymakers. However, tightening monetary policy has real
economic costs, but delaying it will only make them worse. Relying on targeted financial
support can help mitigate the impact on the most vulnerable, but given the fiscal pressure on
governments due to the pandemic and the general stance of macroeconomic policy to be anti-
inflationary, such policies must be offset by taxes, increased or decreased public spending.
Tighter monetary policy also affects financial stability, forcing the rational use of macro
stability funds and further necessitating reform of debt restructuring frameworks. Policies
targeting specific energy and food impacts should focus on the most affected policies without
distorting prices. Finally, climate change mitigation still requires urgent multilateral action to
limit emissions and increase investment to accelerate the green transition.

The war in Ukraine may permanently paralyze the import of Russian gas to Europe, whose
inflation would be more difficult to control, there would be the greater rigidity of the labor
market than expected, the tension in the global financial situation may generate debts.
Difficulties in emerging markets and developing economies, a deepening crisis in the real
estate sector could further weaken China's growth, and geopolitical fragmentation could
hinder global trade and cooperation.

Therefore, it can be said that this war will be one of the main causes of the economic
recession, because uncertainty still exists and economic shocks can be added to it that will lead
to the collapse of the world economy. In a possible alternative scenario where the risks
materialize, inflation will accelerate further and world economic growth will slow to the lowest
level since the financial crisis of the 1970s.

3. Unemployment

The outlook for the global labor market has weakened since the latest ILO forecasts; much of
the world is likely to struggle to return to pre-pandemic levels in the coming years. Based on
the latest growth projections, the ILO projects that global working hours will be almost 2%
below pre-pandemic levels in 2022, adjusted for population growth, which equates to a
shortfall of 52 million jobs on time. Global unemployment is projected to reach 207 million in
2022, an increase of about 21 million from 2019 levels.

Recovery patterns vary widely across regions, countries and sectors. Since the beginning of the
recovery, the trend in employment growth in low- and middle-income countries has lagged far
behind richer economies, largely due to lower vaccination rates and less fiscal space in
developing countries. The impact was particularly severe in developing countries, as countries
already had higher inequality, more diverse labor conditions and weaker social security
systems prior to the pandemic. Overall, key labor market indicators have not yet returned to
pre-pandemic levels in any of the regions: Africa, the Americas, Arab countries, Asia and the
Pacific, and Europe and Central Asia. Projections for 2023 show that a full recovery remains
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elusive. Europe and the Pacific are expected to be closer to this goal while the outlook for Latin
America, the Caribbean and Southeast Asia is more negative.

In the face of a recession, the unemployment rate will increase, as many companies will have
to reduce staff due to their inability to pay their employees, the recovery of the labor market
will be slower than the economic recovery, and the quality of employment will deteriorate. On
the other hand, there will also be companies that will not be able to get out of the economic
crisis and will have to close down, thus losing many jobs.

CONCLUSIONS

In conclusion, we could be facing a recession very soon as growth slows down in the main
economies of the world for several reasons. In Europe, high energy prices caused by the war
between Russia and Ukraine are reducing domestic consumption and increasing production
costs. In the United States, the tightening of monetary policy affects interest-sensitive
consumption in areas such as housing, automobiles and fixed assets by raising interest rates,
slowing economic growth. China continues to struggle with COVID-19 outbreaks and
disruptions in production, as well as weak foreign demand. Finally, rising import bills for fuel,
food and fertilizer may lead to food insecurity and excessive indebtedness in developing
countries.

Likewise, it can be said that this recession will affect the global level since the main economies
will not grow and neither will those that depend on them, for example, in Latin America our
main markets are these large economies and they are also our main suppliers, therefore,
inflation will continue to grow and this will affect many countries and the most vulnerable
population in the world. The depression will bring with it an increase in unemployment since
many companies that will not be able to get out of this crisis will have to close or reduce
personnel since they will not have the liquidity to maintain their workforce.

REFERENCIAS BIBLIOGRAFICAS

https://www.bancomundial.org/es/news/press-release/2022/09/15/risk-of-global-recession-
in-2023-rises-amid-simultaneous-rate-hikes

https://cepr.net/press-release/la-recesion-en-estados-unidos-afectara-a-sus-principales-
socios-comerciales-segun-proyecciones/

https://elpais.com/economia/2022-08-10/la-inflacion-china-alcanza-su-maximo-en-dos-anos-
por-el-encarecimiento-de-los-alimentos.html