How is the specter of a global economic recession growing?

More and more grounds show that the risk of a global recession is growing, while it is difficult to use traditional methods of resolution.

There is no official definition of a global recession, although the World Bank measures it as a decline in global GDP per capita. In a new report released on September 15, the World Bank estimated that next year's global GDP will grow by only 0.5%. But GDP per capita fell by 0.4%. In theory, in this organization's view, this is a global recession.

Some other economists acknowledge a global recession when there is a broad-based decline in a number of indicators, such as industrial production, cross-border capital flows, employment and trade. In some ways, a recession in most major economies also helps define a true global recession.

"We have the US, Canada and Europe all in recession in the second half of this year and early next," said Ben May, director of global macro research at Oxford Economics. According to the expert, whether a global recession takes place or not depends on each person's perspective. However, the economic outlook, he said, is weak and "will look like a recession".

First, consider what's going on with the world's largest economies. In the US, high mortgage interest rates make the housing market bleak. On Friday (September 16), Goldman Sachs lowered its US GDP forecast for next year to 1.1%, from 1.5% previously. They also kept their growth forecast for this year at 0%.

"The path of higher interest rates combined with the recent tightening of financial conditions suggest that the outlook for growth and employment is somewhat weaker next year," Goldman Sachs experts said.

A consumer shops in a Walmart supermarket in Los Angeles. Photo: Reuters

This week, Oxford Economics also said that the Fed will act aggressively enough to bring down inflation, even if it sends the US into a short recession. "Longer-term higher inflation, more aggressive monetary policy tightening by the Fed, and the negative impact of a weaker global backdrop will combine to push the US economy into a mild recession." company commented.

Since 1981, US and global growth have largely moved in tandem, according to Citigroup research. In the four global recessions since 1980, the United States - which accounts for about a quarter of global GDP - has slowed either just before the global economic collapse or at the same time.

Trouble also arose in other major economies. In Germany, energy shortages affect factory output. In China, tough anti-epidemic policies hinder business operations.

With the US and other governments also reducing spending on pandemic relief measures, the global economy is receiving less support from policymakers than at any point in 50 years.

"I see a bumpy road ahead. We're in a world where shocks are going to continue," said Daleep Singh, global chief economist at asset manager PGIM Fixed Income. determined.

FedEx shares fell on Friday, dragging the market down, after the company's CEO Raj Subramaniam predicted a "worldwide recession".

Central banks' war on inflation is increasingly pushing the world closer to the brink of recession. According to Citigroup, central banks are engaged in the most aggressive rate hike campaign since the late 1990s. This month, central banks in Europe, Canada, Australia and Chile raised rates. The Fed is also expected to raise interest rates for a fifth time at its meeting next week.

Some economists worry that central banks are misinterpreting the global economy, as they rush to raise interest rates. According to them, the fact that many countries tighten credit at the same time can stifle global growth.

"I don't think many or any central banks are paying attention to how their policies are affecting the rest of the world," said Maurice Obstfeld, former chief economist at the IMF. member of the University of California, Berkeley campus, commented.

The Fed's rate hike is causing the dollar to appreciate against other major currencies, making imported goods cheaper for Americans. However, this makes it difficult for people and businesses in other countries.

Large oil-importing countries like Tunisia are particularly affected because crude oil is priced in USD. A stronger greenback also hurts developing nations with large dollar-denominated debts. As their local currency depreciates against the USD, more Turkish lira or Argentine pesos will be needed to repay the debt.

Despite raising interest rates by 2.5 points since March, the Fed has yet to cool down inflation. Some analysts expect the Fed to continue to raise interest rates beyond 3.8%. Economists at Deutsche Bank say the Fed's interest rate could hit 5% next year, nearly double current levels.

The big worry is Europe, which is struggling to adapt to the loss of Russian gas supplies. As energy prices soar, consumers and businesses are struggling. After years of keeping borrowing costs below zero, the European Central Bank has raised interest rates twice since July to curb inflation. They intend to continue to do so despite the weakening economy.

"It's their most dramatic policy shift since the global financial crisis. The energy supply shock affects them more than the US," said economist Carmen Reinhart of the John School of Management. F. Kennedy, Harvard University, review.

Some economists predict a broader correction of inflation is on the way. After decades of global integration that allowed the United States and other advanced economies to enjoy cheap goods, the situation is gradually changing.

The US, European and Chinese governments are encouraging greater domestic production through subsidies and investment restrictions. The reshaping of the global supply chain, combined with efforts to accelerate the transition from fossil fuels to tackling climate change, will, said Dana Peterson, Conference Board Chief Economist. make it more expensive. "The days of super-low inflation are probably over," she said.

The global economy contracted in the second quarter for the first time since 2020. If it turns into a full-blown recession in the coming months, traditional measures will be hard to come by this time. .

For example, lowering interest rates is the usual remedy for low growth. But with inflation raging near 40-year highs in the US, Europe, Canada and the UK, central banks are looking to raise interest rates further.

In 2008, when the global financial crisis erupted, China ramped up infrastructure spending with nearly $600 billion, and then years of generous funding by state-owned banks. According to the OECD, the total bailout amounted to more than a quarter of China's GDP, significantly more than the amount the US spent on stimulus.

Chinese spending translates into orders for mills in the US and Europe, copper mines in Peru and iron ore producers in Australia.

Today, China is preoccupied with its own troubles. These include the heavily indebted real estate sector and decelerating exports. The yuan this year has also fallen nearly 9% against the dollar.

"Chinese leaders appear to be more reluctant to use the leverage they have used in the past," said Ben May of Oxford Economics.