The economy today

Why are we afraid of another recession?

Audio 04:26

In recent weeks, the question about the recession has been omnipresent in the United States (photo illustration).

BRUCE BENNETT/GETTY IMAGES NORTH AMERICA/Getty Images via AF

By: Dominique Baillard Follow

3 mins

Will the global economy, barely recovered from the consequences of the Covid-19 pandemic, fall back into recession in the coming months?

The question is coming back in force among forecasters.

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There will be “

” in the United States, predicted a few days ago the economist of Bank of America, “ 

 ” in prospect chains this Monday another American strategist.

These pessimistic prophecies clash with the good health of the American economy where the labor market is tight with unemployment falling to 3.6%.

For the past few weeks, the question on the recession has been omnipresent, however, it replaces that of the year 2021 on the return of inflation.

The latter has been exceeded since prices have risen sharply everywhere.

We are close to 8% in the euro zone, we should largely exceed this threshold in the United States.

The figure is expected during the day.

This well-established inflation becomes a problem for the Federal Reserve as for the other central banks

And this is precisely what is rekindling the fear of recession.

Central banks have a duty to contain the rise in prices, around 2%.

This is part of their mandate, and for this they have a powerful tool: rising interest rates.

This very quickly discourages demand and therefore lowers prices.

But the manipulation of rates is risky: if the increases are too large, too fast, or not sufficiently announced and therefore anticipated by the markets, they can derail activity and lead to recession.

We know how to operate the printing press, gently removing it is a much more difficult operation to master.

In the United States, Jerome Powell, the Fed governor, started raising rates in March, but he is already accused of having waited too long.

Christine Lagarde has the same dilemma to solve in the euro zone, a region where growth will be almost zero in the first half.

The war in Europe is also a factor aggravating the risk of recession

Because it feeds the inflation already sensitive before the start of the conflict and because it upsets the flow of goods.

Because of the war, the growth of world trade will probably be halved, the WTO predicted yesterday.

As Vladimir Putin does not seem to be in a hurry to end it, the conflict could settle over time and lead to tougher sanctions.

The total embargo on Russian energies seems inevitable.

Between shortages and rising prices, Europeans, large consumers of Russian gas, should be the first to pay the price.

Foodstuffs, of which Ukraine and Russia are major suppliers, are also increasing.

Minerals, which Russia especially holds in quantity, are also increasing.

These goods are increasingly difficult to export.

The planet is therefore facing a massive supply shock.

Costs are rising, inflation gallops as production declines due to lack of sufficient supplies.

It's quite atypical, in a classic recession, supply and demand fall together and this has a deflationary effect.

Last source of concern: the resurgence of Covid-19 in China

The zero covid strategy in which Xi Jinping persists is paralyzing major business centers like Shanghai.

The automotive industry is the first victim.

Sales in China fell by 10% on annual average in March.

Because of production disruptions and the absence of potential buyers stuck at home.

Covid in China, war in Europe and overheating in the United States: this poses a lot of threats to the economy of the three richest regions of the world.

► IN BRIEF

Ukraine's finance minister appeals for help to ensure his country's survival.

In the

Serhiy Marchenko estimates that the Ukrainian state needs several billion dollars each month to cover its deficit.

With the war, tax revenues were halved.

The state is making drastic cuts in its spending, but not enough to make up for the deficit, which could double in April and reach $5 billion.

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