More and more economists see a specter called a recession coming.
The waste of economic stimulus due to the pandemic, the bottlenecks in the supply chains due to the restrictions in China and the The Russian invasion of Ukraine, among other factors, has triggered inflation to levels not seen in decades.
To stop it, the central banks resort to the manual and raise interest rates, while the stock markets -with the indices Americans as a reference – react with prolonged falls that reflect the little faith of investors in what lies ahead.
And what awaits us is, according to many, a recession: a depression in economic activities that translates into negative growth in gross domestic product (GDP).
In general, a term of two consecutive quarters of economic contraction of the GDP is established to decree a “technical recession”.
Seven out of each 10 economists in the United States believe it will arrive this year or next, according to a recent survey by the Financial Times and the University of Chicago Booth.
The survey was conducted in early June, before the last “black week” on the stock markets and the new rate hike, so it is likely that the ratio has increased.
Falling into a recession has bitter consequences: the collapse of investment, consumption and transactions causes company closures, cutbacks, massive job losses and the inability to pay debts that can lead many to bankruptcy.
BBC Mundo has asked four leading economists if they believe there will be a recession in the US and the world in the near future.
“In 2023, with a 32% probability”
David Wessel, director of the Hutchins Center for Fiscal and Monetary Policy at the Brookings Institution (Washington DC)
“Predicting recessions is a difficult exercise. They usually come from unforeseen shocks and, sometimes, the recessions that experts predict with complete certainty later do not occur.
“However, I see a substantial possibility of a recession in the US, approximately one 32% probability, in 2685. The reason? Federal Reserve (Fed) Chairman Jay Powell does not want his legacy to destroy the progress his predecessors made in bringing inflation down and keeping it low.
“For now the Fed clearly needs to raise rates to slow down demand, relieve upward pressure on prices and prevent inflationary psychology from taking root.
“However, at some point the Fed will face much more difficult decisions, since whether to continue raising rates or freeze them, as the economy slows down and inflation falls but without reaching the 2% target.
“There will be good arguments for either option. I anticipate that Powell’s Fed will err on the side of tightening rather than easing, and thus a recession, albeit moderate, is likely.
“I hope to be wrong , may all problems in global supply chains be resolved, may the lingering economic effects of covid fade, and may we (and the Fed) get much-needed good luck.
“But I don’t think that’s the most likely outcome.”
“Early next year”
Gabriel Gasave, Associate Researcher at the Center for Global Prosperity of the Independent Institute and Director of Elindependent.org (Oakland, California)
“I dare to say that at some point, possibly at the beginning of 2023, we will be facing an important recessive process both in Europe as in the United States.
“It will not be because of the pandemic, its interruptions in supply chains, the Russian invasion of Ukraine, food shortages or rising energy prices.
“It will be basically because, to put it in terms of the Austrian school of economics, the fictitious boom process promoted by governments through a formidable monetary expansion will come to an end. The “boom” will end and the depression will come.
“For now, the northern hemisphere, with the arrival of summer and the year-end festivities at the end of the second semester, I estimate that it will continue with a moderately reasonable level of activity.
“People will travel, spend and many will enjoy those financial assistance checks that governments in electoral campaigns during the pandemic distributed left and right. But the parties don’t last forever, just as no elite athlete can perform forever under the effects of doping.
“At some point he must go back to being what he was before, things must be honest and that Honestly, many economists call it depression, when in truth it is a return to the natural order of things.
“It is also true that, given that now the yields on the US debt are increasing, international capital will have a greater attraction in returning to the United States.
“Therefore, it will be necessary to see to what extent the global capital flows that arrive, together with an appreciation of the dollar and the devaluation of the rest of the currencies, affects the level of internal activity”.
“Probably by the end of this year”
Lindsey Piegza, Chief Economist and CEO of Stifel Financial (Chicago)
“The Federal Reserve has renewed and increased its commitment to control inflation, raising interest rates by 0.75 points in June and putting on the table a possible new increase of another 0.75% for July.
“Although President Joe Biden declared last week that the Fed is not trying to induce a recession, this accelerated path will almost certainly produce, probably by the end of this year, negative growth at best. cases, or stagflation at worst.
“Consumers still suffer from high prices because supply chains continue to be affected and conflicts persist abroad. And now that the Fed is raising rates at a proposed pace of around 4%, or maybe more, it must also deal with the effects of a weaker economy.
“ The accelerated rate-hike strategy will incur a significant cost to the average citizen and the US economy more broadly, with limited impact in cooling supply-side pressures.
“After all, increasing the cost of capital reduces consumption and investment, which alleviates pressures on the demand side -this is already happening and manifests itself in a declining pace of sales- but it can hardly correct the restrictions on the supply side due to the aftermath of covid-19 or an international conflict”.
“Some economists see that rates are rising of interest, that we are coming from a very strong fall with a recession, and they believe that this cycle is going to return. Of course it is possible, but as long as geopolitics does not worsen with more conflicts, more wars, more shortages, more covid, there may not be a recession.
“It is not yet known. Precisely the United States has taken a long time raising its interest rates so as not to cause a recession. Those interest rates at a time when the economy is very hot can generate a small recession.
“If there were to be one, it would be very light and I would rather think that they are going to start all the mechanisms to prevent it from happening. There are too many events, too many geopolitical things that can change any economic forecast, so you have to be very cautious.
“The economy of countries moves in cycles . Both interest rates and economic recessions are part of these cycles, which is not serious to the extent that there is a volatility that is not very pronounced.
“That is what banks are for power stations and economic policy: so that one goes through all these cycles and the economy is not going to grow much because it can generate inflation nor is it going to fall much because it can generate unemployment, depression and other consequences.
“What we have just experienced with covid- is something new in the world. Almost all countries had negative growth and this recovery brings strong ups and downs; It is the volatility we are talking about, but it is less and less.
“I think the worst is over and the US is facing, like everyone else, world, to inflation, and that inflation has to curb growth a bit and slow it down a bit, even reaching negative figures. That’s not so bad.”
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