Saying global recession is on its way is a fallacy. With one foot inside the door, it is already here. Look at the central banks in developed and developing economies for confirmation. They have been, of late, hawkish and hiking interest rates with militant aggression. They are busy now combating untamed inflation with single-minded devotion. Trying to cool too much is seeding the dark recession-bearing clouds.

Global Recession a Storm-in-Process

The American labour market continues to be strong, despite dips in job openings. This is no consolation. Distressingly, global business behemoths, including tech biggies Google, Apple and Meta, are gearing up for large-scale layoffs and working on freezing fresh hires. As an example, Google wants a leaner budget for employee perks. Hit already by two quick quarters of negative GDP growth in 2022, America is a ruffling example of a fast-growing global recession today.

Worse, Russian dictator Vladimir Putin is showing no signs of giving up on Ukraine. The US Federal Reserve (Fed) is keen on tightening its monetary policy further through rate hikes. The hawkish Fed and central banks elsewhere are set to strengthen the recessionary storm by slamming the brakes on economic growth. A worse global recession is a storm-in-process.

Global Recession’s Merciless Trail

Should the Fed be blamed entirely for this recessionary build-up? No, not at all. The Fed did abandon quantitative easing and near-nil pandemic interest rates to embrace a tighter inflation-combating monetary policy. Probably, the Fed will not slow down anytime soon in its anti-inflation mission. The Fed may soldier on with more rate hikes. When steady supplies of money and the climate change catastrophe join hands with a hawkish Fed, a full-blown global recession will be a natural consequence.

Ominously, expect such a full-blown recession to make its fullfledged presence in America by end 2022. In no time, an American recession will be exported worldwide. Such a global recession is expected to be severe, devastating and long enough to last until end 2023. On its merciless trail, this global recession will kill pseudo institutions, shady firms and dubious shadow banks. Undoubtedly, it will be a hard crash-landing for the global economy.

The Bearish Outlook of IMF

The International Monetary Fund (IMF) couldn’t agree more. The 190-nation institution is lowering its projections for global economic growth in 2023. Recently, MD Kristalina Georgieva told her listeners in Georgetown University: “IMF is projecting world economic growth lower by USD 4 trillion through 2026.” This is as large as Germany’s economy. With its sister-lender World Bank, IMF has identified raging inflation and the Russian rampage as villains.,a%20speech%20at%20Georgetown%20University.

Affirmatively, these twin factors have dealt multiple blows on a pandemic-hit global economy, with climate changes in tow. Cumulatively, these rogues have caused surges in global food and energy prices. In turn, these suicidal surges are precipitating a cost-of-living crisis. Against the backdrop of geopolitical fragmentation, the whole gamut of causes and effects of recession are ‘fundamentally shifting’ the global economy. Again, it is but natural, a full-blown global recession is trying to force its way in.

Recession Real and Tangible

The World Trade Organisation (WTO) too has lowered its 2022 numbers.  WTO has projected a three per cent growth in merchandise trade against an earlier projection of 4.7 per cent. Surely, global recession is here with one foot inside the world’s door.

With this halfway entry, the question is not when the recession would arrive. The worry now is how long it would linger on. Fearful, economies are already rolling out quick fix policies in a connected world. This makes global recession real and tangible. As it is not possible for global energy to move away from Russia so easily, global recession is sure to extend its agonising run. Sucked into the vortex of stagflation, developing economies will end up anytime now battling slow growth and inflation.

Downgraded for the Third Time

Rightly, Georgieva said, “Things are more likely to get worse before it gets better.” She was not fearmongering when she called the economic environment today a ‘period of historic fragility’. According to her, nations adding up to one-third of the global economy will see at least ‘two consecutive quarters of contraction this or next year’. Not surprising, an unhesitating IMF has downgraded its global economic growth forecast for the third time.

IMF reveals its logic behind this move in detail. IMF’s latest global economic growth projections tell how grim is the outlook for the global economy: 3.2 per cent for 2022 and 2.9 per cent for 2023. Plus, the 38-nation Organization for Economic Co-operation and Development says the war-hit global economy will lose US Dollars 2.8 trillion in output in 2023. Alarmed, many strategic economies are tightening their monetary policies, too much and too fast. Concerned, warns Georgieva: “Doing so in a synchronized manner across countries, could push many of these economies into prolonged recession.”

Politically Sensitive Strategy

As if these are not enough, the 13-member Organisation of the Petroleum Exporting Countries too is set to slash its output to shoo the oil bears away. Such a strategy will hammer an already-doddering global economy. The consequences will not be pleasing. Retail fuel costs for vehicle owners-operators in America will climb. This is a politically sensitive issue and could influence the key November national elections in America.

A fuel-triggered turmoil in America can rapidly cross borders. Georgieva could not have been more prescient when she warned against a predictable global economy, guided by a ‘rules-based framework for international economic co-operation, low interest rates, and low inflation,’ transforming itself into an economy ‘with more fragility, greater uncertainty, higher economic volatility, geopolitical confrontations, with more frequent and devastating natural disasters.’

Yes for Brakes and No for Accelerator

In such a world, any nation can be thrown off course easily. This doomsday prognosis calls for concrete action on four fronts. One, make the global economy stable by focusing on priority challenges, which include an energy-crunched Eurozone, a pandemic-hit China and a slowing-down United States. Two, re-energise global co-operation. Three, re-configure the global economy to make it resilient against future shocks. Four, iron out geopolitical differences and settle international disputes amicably.

Not difficult to do, if global nations stay focused on slaying the monster of inflation. Not swinging to the extremes and by striking a balance between too much tightening and total loosening, nations can put up a winnable fight against creeping recession. While doing so, they may have to grin and bear the pain. This pain would be temporary and this is preferable over lasting agony. Alongside, they need to usher in sensible fiscal policies. While slamming the brakes with their monetary policies, let them not step on the accelerator with their reckless fiscal policies.

The Bane of a Bullish USD

These anti-recession strategies could be made 100 per cent effective by whittling down the exaggerated role of USD in global economy. As the USD gains its strongest position in two decades, it is essential to check the Fed from raising interest rates, as rate hikes make the USD glamorous for global investors. Plus, in a panic situation, rising USD is a carrot of investment incentives.

However, a bullish USD inflicts pains on rest of the world, as imports become expensive. Plus, it makes Wall Street go awry to disorient listed corporate biggies. Most of them have their operations spread out globally. To quote Morgan Stanley: “Each per cent rise in the dollar index has a negative 0.5 per cent impact on the earnings of Standard & Poor 500”. Thus, inevitably, this Standard & Poor’s basket of 500, the broadest indicator of Wall Street and the index responsible for most American 401(k)s, gets hit. When it gets hit, three major American stock indices and the American bond markets too get hit.

In Conclusion

There is a silver lining to this dark cloud. As the history of Great Depression shows, changes kicked in by economic crises throw up great opportunities. Living standards get lifted. Economies of nations grow stronger and a few of them become more resilient. There is one major political spinoff here which economists ignore.

A shattering global recession can exorcise the ghost of arrogance from economies managed by autocrats, elected and unelected. Corrupt, incompetent and dynastic governments crumble with their moorings yanked away. Given to populism and poll optics, demagogues in not-free and partially-free states bow out in disgrace. Seen through this political prism, a global recession may be welcome.