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Five Signs Why Global Economy Is Headed For Recession.

  • Thursday, 06 Oct, 2022
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Five Signs Why Global Economy Is Headed For Recession

Experts from the banking sector have long warned that a global recession is imminent.

Companies throughout the globe have halted recruiting and announced plans to reduce employees as growing inflation leads to higher borrowing rates.

On Tuesday, the United Nations issued a warning about an approaching global slowdown that might be much more devastating than the financial crisis of 2008 or the COVID-19 shock of 2020.

The UN Conference on Trade and Development (UNCTAD) cautioned that emerging countries like those in Asia might be hit hard by a global recession in its Trade and Development Report 2022.

It warned that ongoing interest rate rises and other monetary and fiscal policies in industrialised nations might lead to a worldwide economic downturn and stalemate.

Numerous factors have been cited by economists to explain their consensus on an impending economic downturn. Here are five of the most telling signs that the global economy is slowing down.

US Dollar

In recent months, the value of the US dollar has risen dramatically. Now at its highest point in two decades, its value is expected to rise more in the days ahead.

However, this increase in the dollar's purchasing power is causing turmoil in economies and markets throughout the globe.

A strong dollar is good news for Americans, but it has negative repercussions for most other nations, particularly the developing ones.

Many other currencies have seen their value drop as the US dollar has risen in value. This includes the British pound, the euro, the Chinese yuan, the Japanese yen, the Indian rupee, and many more.

Since then, it has been more costly for these countries to import food and gasoline.

Consequently, central banks raise interest rates in an effort to slow the rise in prices and protect the value of their currencies.

US Economy Faltering

Retail activity is the engine that drives the American economy. The phrase "shop 'til you drop" is almost a way of life for them.

Unfortunately, their expenditures has taken a major blow lately. And the increase in interest rates by the Federal Reserve in the United States is to blame.

Mortgage rates are now at their highest level in decades because to the central bank's unprecedented rate hikes, which have severely hampered economic growth.

When the Fed raises interest rates to slow inflation, consumers are hit with a temporary drop in their ability to borrow money.

Corporate America Tightens Purse Strings

Although the company did well in 2020 despite the Covid shocks because of American consumers' spending, things have not been easy in the months after Russia's invasion of Ukraine, as CNN reported.

Midway through September, FedEx, which has a presence in more than 200 countries and whose success is a barometer of market health, adjusted its predictions.

It foresaw a decline in demand and a decline in profitability of more than 40 percent.

Furthermore, Apple reduced iPhone 14 manufacturing last week in response to muted demand. Its stock price dropped by 4% as a result of the decision.

Bear makes an entry into Wall Street

The stock market is set to have its worst year since 2008, according to CNN.

The stock market took a major hit when the Fed hiked interest rates in response to inflation.

The S&P 500, Wall Street's broadest benchmark and the index most 401(k)s are tied to, is down over 24 percent year-to-date. The three main US indices are all in bear markets, having fallen by at least 20% from their recent peaks.

Bond yields in Europe are also rising as central banks there raise interest rates to protect their currencies from the Federal Reserve's actions.

War and inflation

British citizens have suffered the most as a consequence of the ongoing Russia–Ukraine conflict and the ensuing rise in prices.

Since COVID-19 and the subsequent trade interruptions caused by Russia's invasion of Ukraine, the United Kingdom has been reeling under the weight of rising costs.

Due to Western restrictions on Russian gas, both the price of energy and its availability have increased significantly.

According to CNN, British citizens are worried about rising borrowing charges that would increase the monthly mortgage payments of millions of homeowners by hundreds or even thousands of pounds as the country struggles with a cost-of-living problem brought on by inflation approaching 10%.

When would recession hit?

There is unanimity among economists that a worldwide recession is coming; yet, many put the year 2023 as the most likely occurrence. But no one can say with certainty how bad it will be or how long it will endure.

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