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Is a global recession coming? In the US, China is mounting risks in 2022

Recession in the year 2022. The Ukraine conflict and China’s economic restrictions are threats to the global economy.

Is the world on the verge of another downturn?

A growing list of threats is clouding the economic outlook, just as the global economy is recovering from the COVID-19 pandemic — but most economists still believe a recession this year is improbable.

In 2022, the Ukraine conflict, Russian sanctions, China’s “zero COVID” policy, soaring inflation, and interest rate hikes by the US Federal Reserve are all expected to stifle GDP.

The concern is whether deteriorating conditions and ill-advised policy decisions will cause the global economy to contract from a slowdown.

Economic Recession in 2022: What Steps Can You Take Now?“Recessions are extraordinarily difficult to anticipate, and even the best forecasters, such as the Federal Reserve, don’t know we are in one until it’s too late,” Tara Sinclair, an economics professor at George Washington University in Washington, DC, told the reports.

In general, policy-makers underweight recessions in their estimates, focusing instead on the economy’s projections during normal times.

The Federal Reserve in the United States is grappling with the difficult task of reducing interest rates and inflation, which is at a four-decade high, without triggering a recession by hiking rates too quickly. Most economists believe the central bank had only done it once before, in 1994, when then-chair Alan Greenspan oversaw a doubling of the benchmark rate without destroying economic growth.

A slowdown in the world’s largest economy, which grew at its quickest rate in decades last year, would echo around the world, threatening to reverse growth just two years after the pandemic caused the global economy to contract by 4.3 per cent.

Nasdaq's Friedman elected to sit on New York Federal Reserve board of  directors - The TRADEBill Dudley, the former president of the Federal Reserve Bank of New York, wrote in an op-ed piece last month that a recession was essentially unavoidable because the Fed had waited too long to tighten policy.

Following a quarter-point rate hike last month, US Fed Chair Jerome Powell has stated that the central bank can achieve a more likely than not soft landing this year.

An inversion of the yield curve charting short and long-term US Treasury bonds in recent weeks has been another warning sign, indicating that investors are becoming gloomy about the economy’s near-term prospects.

Since 1955, every US recession has been preceded by an inverted yield curve, which occurs when investors shift away from riskier stocks and toward less risky bonds. The duration between an inversion and a downturn has varied from months to years.

US Economic Forecast Q1 2022 | Deloitte InsightsA real risk

According to Campbell R Harvey, a pioneer in using the yield curve to predict recessions, the curve does not now point to a contraction because it has not been inverted for at least one complete quarter.

Nonetheless, Harvey believes a recession is a real possibility, and he agrees with opponents who believe the Fed has been too sluggish to move on inflation.

Harvey, a professor at Duke University’s Fuqua School of Business, says, “They had a very tough challenge.

“Did they wait too long?” It’s correct.

“Does it pose a real threat?” “Of course it is.”

For the time being, economists seem to be more optimistic about the United States economy than the general people.

According to a poll conducted for CNBC last month, 81 per cent of US adults anticipate a recession will occur in 2022.

Goldman Sachs experts, on the other hand, recently pegged the chances of a US recession in the coming year at 20-35 per cent.

Barclays says global recession unlikely, cuts growth expectationsTim Harcourt, the chief economist at the Institute of Public Policy and Governance at the University of Technology, Sydney, told reporters that “It might not be enough to save the Democrats in November, but it might be enough to keep the economy afloat.” China’s economy will suffer as a result of the new Shanghai lockdown.

Although economies have fared relatively well so far in the face of the Ukraine conflict and Russian sanctions, the likelihood of escalation and additional punitive measures remain risk factors in the coming months.

While Europe has opposed sanctions on Russian energy, focusing solely on coal so far, there are rising calls to include gas and oil, which account for 40 per cent and one-third of the continent’s supplies, respectively.

President of the European Council, Charles Michel, told the European Parliament on Wednesday that he believes oil and gas-related measures will be needed “sooner or later,” a move that is expected to push already-high energy prices further higher.

Meanwhile, China’s ongoing efforts to stop the spread of COVID-19 by enforcing rigorous lockdowns and border controls are lowering local consumption and worsening global trade disruptions during the country’s largest epidemic yet.

Hundreds of ships wanting to unload their goods have been held up in lineups in recent weeks in Shanghai, which has been in lockdown for more than two weeks and houses the world’s busiest container port.

China is unlikely to fulfil its 5.5 per cent growth target this year, according to Carsten Holz, a Chinese economy researcher at the Hong Kong University of Science and Technology.

China Recession Stock Illustration - Download Image Now - iStock“Given that the People’s Republic of China is unlikely to return to a zero COVID case scenario anytime soon,” Holz told the reporters. He further added that supply chains would continue to be affected, resulting in price hikes, which will add to the pressure on Western central banks to boost interest rates.

“Whether interest rate hikes in the West cause a recession is partly determined by demand, which appears to be strong, thanks partly to pent-up demand following the lifting of COVID limitations in the West. A wage-price spiral rather than a recession appears to be more plausible.

That is not to argue that a bubble, whether it’s a stock market bubble or a real estate bubble, will not burst, a danger that will always exist because what defines a bubble can only be assessed in retrospect after a dramatic decline in values.”

However, overall economic estimates for Asia-Pacific remain upbeat.

The Asian Development Bank forecasted that Asia’s developing nations will grow 5.2 per cent in 2022 and 5.3 per cent in 2023 in its latest economic outlook released on Wednesday, which was only marginally lower than previous estimates.

A worldwide recession is still unlikely in 2022, according to Trinh Nguyen, a senior economist for Asia at Natixis in Hong Kong.

The good news for Asia is that we have really low rates and normalization of operations, excluding China’s no-COVID policy,” added Nguyen. That should help us get through this economic downturn. Still, increasing commodity prices, tighter financial conditions due to the rise of the USD and interest rates, and the slowdown in China are reducing momentum, particularly in the most vulnerable countries.”

According to the economist, despite this, rising commodity costs because of the ongoing Russia-Ukraine conflict, high inventory demand, and exceptional supply constraints resulting from Covid-19-induced scarcity continued to support prices. It’s a cause of recession coming in.

Edited by Prakriti Arora

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