Risk of recession in Europe, US and China is rising by the day
Is the global economy flying into a perfect storm, with Europe, China, and the US all entering downturns at the same time later this year? The risks of a global recession trifecta are rising by the day.
A recession in Europe is almost inevitable if the war in Ukraine escalates, and Germany, which has been fiercely resisting calls to pull the plug on Russian oil and gas, finally relents. China is finding it increasingly difficult to sustain positive growth in the face of draconian Covid-19 lockdowns, which have already brought Shanghai to a screeching halt and now threaten Beijing. In fact, the Chinese economy may already be in recession. And with US consumer prices currently increasing at their fastest rate in 40 years, prospects for a soft landing for prices without a big hit to growth look increasingly remote.
Private and official economic forecasts have recently started to highlight growing regional risks but perhaps understate the extent to which they multiply each other. Widespread lockdowns in China, for example, will wreak havoc with global supply chains in the short run, raising inflation in the US and lowering demand in Europe. Normally, these problems might be attenuated by lower commodity prices. But with no clear end in sight in Ukraine, global food and energy prices are likely to remain high in any scenario.
A recession in the US, especially if triggered by a cycle of interest rate rises by the Federal Reserve, would curtail global import demand and trigger chaos in financial markets. And although recessions in Europe normally radiate globally mainly through reduced demand, a war-induced slowdown could radically shake business confidence and financial markets worldwide.
How likely is each of these events?
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