Global recession: Momentum weakening across major economies

Bad news about the health of the $100tn global economy keeps coming as the world has entered the new year with a weakened momentum.From an economic perspective, for the pessimist, there is plenty to worry about 2023: Price shock, tight money, stalling recovery, war impact, strong dollar, housing bust, supply strains ... the list appears endless.International Monetary Fund managing director Kristalina Georgieva has warned that the global economy faces "a tough year, tougher than the year we leave behind.”"We expect one-third of the world economy to be in recession,” Georgieva said on January 1. "Why? Because the three big economies — US, EU, China — are all slowing down simultaneously.”The IMF already warned in October that more than a third of the global economy will contract and that there is a 25% chance of global GDP growing by less than 2% in 2023, which it defines as a global recession.Data published on Saturday showed that China’s abrupt reversal of its Covid Zero policy pushed economic activity in December to the slowest pace since February 2020 as the virus swept through major cities.Purchasing manager index numbers for manufacturing showed negative readings across Europe, Turkiye and in South Korea.The world faces a recession in 2023 as higher borrowing costs aimed at tackling inflation cause a number of economies to contract, according to the Centre for Economics and Business Research.The global economy surpassed $100tn for the first time in 2022 but will stall in 2023 as policy makers continue their fight against soaring prices, the British consultancy said.Indeed, this was supposed to be the comeback year for the world economy following the Covid pandemic. Instead, 2022 was marked by a new war, record inflation and climate-linked disasters.It was a "polycrisis” year, a term popularised by historian Adam Tooze.Many countries are now grappling with cost-of-living crises because wages are not keeping up with inflation, forcing households to make difficult choices in their spending.Above all, 2022 was the year of inflation.Pandemic price pressures, dismissed as transitory, turned out to be enduring with Russia’s war in Ukraine causing a fresh spike in food and energy costs.Initially slow to react, the Federal Reserve and its fellow central banks were forced to play catch-up. They raised interest rates at the fastest pace in decades.By the year’s end, inflation appeared to be past its peak — but economies were stalling, as tight money began to bite.While, still-tight labour markets have provided some support, recession risks are mounting into 2023 for some of the world’s major economies, including the US and Europe.The coming months are expected to see more rate increases — and a cooling in inflation, though perhaps not by as much as central banks would like. This year is likely to turn tougher for workers, with unemployment forecast to rise.One striking feature of the world economy at the end of 2022 is the difficulty of seeing what’s coming next.In the period from the arrival of Covid to the Russian invasion of Ukraine, a much-cited gauge of policy uncertainty has been at the highest levels on record.Make no mistake, 2023 is going to be eventful as well as crucial. Policy makers, businesses and investors need to prepare themselves to pursue different strategies to protect value and seize opportunities.Amid a new order of surging uncertainty, being prepared could make the difference.