The Economist: A bleak mix of recession threatens the global economy

US inflation, the energy crisis in Europe and the Omicron outbreak in China threaten the global economy with a slowdown, according to the British magazine The Economist, which says in a report that just a year ago the world's economists were celebrating a quick recovery from recession, and they are now worried that deflation appears in the horizon.

In America, the Federal Reserve is preparing for a battle with high inflation by raising interest rates sharply and shrinking its balance sheet, and expensive energy in Europe reduces consumers' ability to spend and makes factories more expensive to operate.

In China, the outbreak of the omicron variant corona led to the authorities imposing the harshest closures since the beginning of the epidemic.

It's a bleak mix of global growth, the prospects look bleak, and many economies could slump, albeit at different times depending on the obstacles they face.

Regarding the economy, the report says that production cannot meet demand, that the annual rate of consumer price inflation is 7.9%, and hourly wages have risen by 5.6% than they were a year ago.

Inflation and unemployment

The report indicated that there are nearly twice the number of job opportunities available to unemployed workers in America, the highest percentage in 70 years, and that central bank governors last year hoped that Americans who left their jobs after the outbreak of the epidemic would return, which would help calm the labor market. .

In the past six months, more than half of the workers who lost their jobs have returned, yet wage growth has picked up, perhaps because workers are negotiating hard, while higher prices are lowering living standards.

The report said that the Fed needs wage and price growth to calm down if it is to reach the 2% inflation target, and short-term interest rates - which started this year below 0.25% - are expected to rise to more than 2.5 percent by December. and to exceed 3% in 2023.

The central bank this week followed a plan to reduce its $8.5 trillion bond holdings, starting in May, at a much faster pace than during the last period of "quantitative tightening".

energy crisis

Europe also suffers from an inflation problem, but its cause so far is the rise in the prices of energy and imported food more than double production. The Russian war on Ukraine and Western sanctions threaten the energy supplies on the continent, and gas prices next winter will be 5 times higher than in America, Household energy spending is twice as much as GDP per capita (in part because Europe is poorer), as energy prices have risen, consumer confidence has fallen, and businesses are suffering, too. French industrial production fell in February.

The eurozone economy will likely continue to grow in 2022 as a whole, but it looks fragile. If Europe stops importing Russian gas - whether it chooses to do so or the Kremlin decides to cut supply - the risk of a recession will rise.

Omicron

The threat to global growth from the Omicron outbreak in China is the most serious, as China reported more than 20,000 new cases of the virus on April 6, and given that the government is committed to eliminating “Covid-19”, the 26 residents of Shanghai Two million residents and other major cities affected by the disease are under lockdown.

If the prior relationship between lockdowns and GDP holds, then China's real-time production will be 7.1% lower than it would be in a world without restrictions.

According to The Goldman Sachs, the closures will also disrupt global trade that is still reeling from the hangovers of what it was earlier in the pandemic, and Shanghai is the latest global port with hundreds of ships waiting outside to load or unload.

Chinese President Xi Jinping urged officials to reduce epidemic restrictions, but if these restrictions are eased too early, China will witness a wave of infections and deaths like the one that plagued Hong Kong recently, and this would scare consumers and become a source of economic disruption in an extent. The same, and until China vaccinates the elderly in sufficient numbers using the most effective treatment methods, the closures will be a permanent feature of its economy and a source of global fluctuations.

The magazine concluded its report that the blame for many of the problems of the global economy rests with policy makers, as it was assumed that the Fed’s task would be to spare the economy the expected difficulties, while European governments left the continent dependent on Russian natural gas, and China’s problem was in eliminating Omicron Widely expected, the fear of a recession today can be avoided.