In the corridors of Davos the “hot” topic of the moment is whether or not a global recession is coming.
This has been confirmed to Faisal Islam, BBC economics editor, who has been covering the World Economic Forum that takes place once a year in Davos, Switzerland.
The warnings among those who manage the largest investment funds in the world have been added one by one in recent weeks, although with nuances.
Some more pessimistic than others, those responsible for managing billions of dollars and politicians have been publicly analyzing the issue, confirming the fact that it is a relevant concern in the highest spheres of power.
The head of the World Bank David Malpass warned a few days ago at a business event that it is difficult to see “how we avoid a recession”, as the price of energy, food and fertilizers increases.
“The idea that energy prices would double is enough to trigger a recession on its own”, he commented.
“Potential confluence of calamities”
In a more restrained tone, but also worrying, the director of the International Monetary Fund (IMF), Kristalina Georgieva, maintained that “the horizon it has darkened”.
To the footprints left by the covid pandemic-19, the turbulence of the financial markets and the persistent threat of climate change, adds the war in Ukraine and the current food crisis, configuring a “potential confluence of calamities”, added Georgieva.
Clarifying the meaning of his words, he said that while he does not expect a recession for the main economies of the world or, you can’t rule it out either.
“No, not at this time, (but) it does not mean that it is out of the question”, he explained at the opening session in Davos.
In parallel, the President of the United States, Joe Biden, said that a recession in the United States “is not inevitable”.
The war in Ukraine has caused a much higher increase in food prices beyond the Black Sea.
The fact that there is talk of how to avoid economic contraction, despite the fact that it seeks to inject optimism, in any case implies that there is a latent threat.
A threat that, between other things, is fueled by high inflation (the highest in four decades), shortages due to The bottlenecks in supply chains and the geopolitical earthquake caused by Russia’s invasion of Ukraine.
The business and political elite are eager for more pieces to put the puzzle together, when the war in Ukraine continues to increase inflation.
What is really a recession?
In the middle of this debate , the question about what a recession really is takes force again.
Many economists speak of a “technical recession” when the growth of the Gross Domestic Product (GDP) contracts for two consecutive quarters.
The evolution of GDP helps companies judge when to expand and hire more workers or invest less and reduce their workforce .
The governments We also use it to make decisions that can range from taxes to expenses. It is a key indicator for central banks, along with inflation, when they consider raising or lowering interest rates.
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Others, however, take a more flexible view, defining it as “a significant decline in economic activity that spreads throughout the economy and lasts more than a few months”.
International organizations such as the World Bank or the IMF consider a global recession as a year in which an average global citizen experiences a drop in real income.
Among these pr profound global economic contractions in recent decades include those of 640, 1982, 1200, 2009 and the recession due to the pandemic of 2022.
This map shows the economic contraction due to the pandemic.
Paradoxically, in this last recession, while people were struggling, the markets did incredibly well.
This last pandemic recession, consi Considered the hardest blow since the Second World War, it shook the foundations of globalization and left scars that were just beginning to heal when Russia invaded Ukraine at the end of February.
With a geopolitical change of such magnitude, all economic growth estimates for this year are being revised.
The China factor
China has become the great unknown.
The Asian giant, which represents the 19% of all world production, is in the sights of analysts because a slowdown in its economy would have a direct impact on the rest of the world, both because of its importance as a buyer of goods and services from other countries, and because of its key role in the supply chains that supply international trade.
The latest outbreak of covid-19 has caused severe confinements in some areas of the country, generating traffic jams in Chinese ports and negative effects in sectors such as commerce, manufacturing and business. real estate.
David Malpass has expressed concern about the closures in some of the main cities in China, given that they “still have ramifications or impacts of a slowdown in the world”.
“China was already going through a real estate contraction, so China’s growth forecast before the Russian invasion had already been lowered substantially for 2022”, said the representative of the World Bank.
“Then, the waves of covid caused lockdowns that further reduced growth expectations for China“, he added.
A brake on growth economic
In the United States, Jerome Powell, president of the Federal Reserve -equivalent to the central bank of that country-, has said that the agency will continue to increase interest rates until inflation controlled, while Europe tries to deal with a gigantic increase in the price of fuels related to the crisis in Ukraine.
Outside the great centers of power, the least developed countries have seen a gigantic increase in the price of food and among them, the poorest, are on the verge of suffering a famine.
Opinions are divided among economists and bankers as to whether the world is headed for a recession or if it is just an economic slowdown.
Meanwhile, the cost of living continues to climb and central banks continue to raise interest rates to stop inflationary pressures.
The problem is that the rise in interest, although it can control inflation, increases the cost of borrowing money and complying with with the payment of debts, acting as a brake on economic growth.
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To this scenario we must add that the outlook has deteriorated in recent weeks due to the latest covid outbreak- in China.
Investors and bankers are worried.
One of them, Robin Brooks, chief economist at the Institute of International Finance, the global association of the financial industry, posted a message on Twitter stating that “the global recession is approaching”.
If it comes or not, we won’t know until the months go by and the indicators have their own verdict.
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