The global economy is headed for a recession for a variety of reasons. The most significant indicators are a strong US dollar, faltering US economy, tightening of corporate America’s purse strings, bearishness on Wall Street, and inflation due to the Russia-Ukraine war.
A strong US dollar makes it more expensive for other countries to import essential items like food and fuel. As a result, central banks in a bid to fight surging inflation and to shore up the value of their own currencies end up raising rates higher.
The faltering US economy is being driven down by increasing interest rates. The central bank has raised rates at a historic pace, making mortgage rates to the highest level in decades and clipping the wings of the business. This has lead to a decline in consumer spending.
Corporate America has also been tightening its purse strings in response to the faltering economy. FedEx has revised its outlook, warning that demand is softening and earnings are likely to take a hit by more than 40 per cent. Apple has also cut back on production of the iPhone 14 due to subdued demand.
All of these factors are leading to bearishness on Wall Street. The S&P 500 is down nearly 24 per cent for the year. Moreover, all three major US indexes are in bear markets— down at least 20 per cent from their most recent highs.
The final factor is inflation due to the Russia-Ukraine war. The trade disruptions created by Russia’s invasion of Ukraine have led to higher prices for gas and other energy supplies. This has caused hardship for the people of the UK who are struggling with a cost-of-living crisis.
While there is a general consensus that a global recession is coming, many analysts predict it will happen sometime in 2023. However, no one can predict how severe it will be or how long it will last.