Top world economists are seeing the handwriting on the wall—the global economy will shortly experience a recession.
A confluence of events is leading the world economy to contract, just as it begins to recover from COVID-19.
World Trade Organization director-general Ngozi Okonjo-Iweala blames multiple colliding crises for the impending recession. Russia’s invasion of Ukraine sent global oil prices soaring and created commodity supply shocks, while COVID-19 stunted world travel and shut down major factories in China, the world’s second-biggest economy.
The resulting inflation surge has forced the US Federal Reserve Board to raise its interest rate several times and other central banks followed suit.
These central bank moves are dampening consumption as the higher cost of money, or increased credit card interest rates, induces consumers to spend less in a high inflationary regime.
Higher US interest rates, as Okonjo-Iweala notes, worsen the debt service burdens of developing nations like the Philippines and weaken their currencies because of capital flight.
The European Central Bank, meanwhile, is set to increase interest rates further to tame rising inflation despite the specter of a regional recession.
It sees economic activities slowing down significantly in the coming quarters amid rising inflation and slowing consumer demand in the face of higher interest rates worldwide.
ECB president Christine Lagarde warns of more interest rate hikes in the bank’s succeeding meetings “to dampen demand and guard against the risk of a persistent upward shift in inflation expectations.”
European consumers are now grappling with high electricity rates, exacerbated by the disruption of natural gas supply from Russia.
They also have to contend with rising food prices and weaker purchasing power amid the mighty US dollar.
A recession in Europe and the US will eventually be felt in Asia. Western consumers will buy less exports from developing nations such as the Philippines.
The reduced purchases, in turn, will cut back production in Third World countries.
And as factories receive less orders from abroad and decrease their output, the number of unemployed people will rise.