Global recession in sight?

In the most recent World Bank study, it is established that, in the absence of a substantial change in circumstances, world growth can slow down violently…

Perhaps the pernicious effects of the pandemic were not fairly estimated. It seemed that with the drop in infections, the universalization of vaccination and the reduction in mortality rates, we had reached the equilibrium point where we would find a virtuous resurgence as humanity. However, the urgency for reactivation after confinement overlooked the fact that an excessive push by the economic machinery could cause overheating that would ultimately lead to inflation. In addition to the above, the manifestation of a war scenario with a world power involved, came to form a poisonous cocktail that today reveals its scope.

And it is that the symptoms of a great global economic illness could be becoming visible. The synchrony in the rise in central bank interest rates is an unprecedented event in the last decade. We are in a rise that could add up to 4 percentage points by the end of this year and thus leave the increases at just over 2% on average than in the past 2021. These energetic policy actions by the central bank seek to contain in the short term inflation that rides upward without controls. But, as we mentioned, there are other factors that could aggravate in the near future; First of all, the interruption of supply chains caused by the pandemic and recently by the effects of the war, the tensions in the financial markets, and a constant and increasing pressure on the labor markets.

Thus, in the most recent study by the World Bank, it is established that, if there is no substantial change in circumstances, global growth can slow down violently. It is already a clear example of what has happened in a measurable way with the three economic powers, which have slowed down their rate of growth. China, the United States and the euro area are the clearest example that it is on the path of a possible recession.

But even delving into the background does not find a simile to what is experienced globally. Not the depressions of 1970 and 1975 that allowed prolonged inflation that finally led to the world recession in 1982; nor does the ensuing lost decade find as many risk factors for a major global recession as we now have in view.

But the time to act is now and the modality must be immediate. Monetary policy must continue on its path to undermine inflation, but in harmony with fiscal policy and measures that seek support and give coherence to both fronts. For their part, the governments must bet on policies to generate additional investments, as well as for the generation of productivity and the strengthening of international trade.

The challenge is on the horizon; Are we aware of its dimensions?

Twitter: @gdeloya