IT’S been a miserable year for the global economy. But things can always get worse.
History says the Federal Reserve’s (Fed) high-speed interest-rate hikes may well tip the United States into recession in 2023. Few will be surprised if spiralling natural-gas prices do the same for Europe.
The double whammy of zero-Covid and a property slump threatens to bring China’s economy to a near standstill.And in an extreme downside scenario, all those things happen at once. That could wipe out some US$5 trillion (RM23.1 trillion) in global output, compared with more upbeat forecasts at the start of this year, says Bloomberg Economics.
The fact that such a gloomy outlook is far from implausible suggests that big things have gone wrong with the world economy.
There’s been plenty of evidence of that in 2022.Cheap money, supercharged demand from China, and low-friction geopolitics – ingredients of the secret sauce that delivered decades of mostly steady growth and stable prices – have all gone, leaving inflation at multi-decade highs and financial-market losses that run into the trillions.
There are positive surprises that could stop the rot next year. The Fed might pull off the fabled soft landing with the labour market proving resilient.,
Warm weather could spare Europe a recession. China may opt for an early exit from lockdowns. Some of those possibilities came into view when markets rallied on lower-than-expected US inflation and indications of a Chinese pivot away from zero-Covid.
And even if those prove to be false dawns, investors who see a top for interest rates and a bottom for growth might start betting on the recovery to come. Still, after years marked by plague, war and scarcity, it’s tough to be optimistic.
Here’s a guide to the biggest economic risks for the year ahead.
> The great rate squeeze is onThe Fed’s benchmark interest rate is poised to hit 5% in early 2023, up from zero at the start of this year. The most aggressive monetary tightening in decades is already hurting America’s economy, and the world’s. There’s more pain to come.
With higher borrowing costs hammering rate-sensitive industries from real-estate to autos, Bloomberg Economics is forecasting a US recession in the second half of 2023. More than two million Americans will likely lose their jobs.Things could turn out better than that, if inflation disappears as quickly and mysteriously as it arrived. But it’s more likely they’ll turn out worse. The pandemic has thrown labour markets out of whack, pushing what economists call the natural rate of unemployment – the level of joblessness required to keep inflation under control – above where it’s been in recent years.
If that’s happened in the United States, and chair Jerome Powell says it’s a possibility, the Fed might have to raise rates as high as 6%, tipping the world’s biggest economy into a longer and deeper recession.Terminal clients can use Bloomberg’s SHOK function to see how the US recession could be earlier and deeper.,
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