The world economy’s failing market conditions are becoming more obvious, with currency depreciation, rising commodity prices, and other trends affecting global supply chains signaling that the globe is facing a recession.
However, the question now is not if the world will experience a recession but when it will.
Experts have declared an imminent recession likely after the Federal Reserve indicated a more aggressive posture in dealing with the United States deteriorating economy by committing to increasing interest rates.
According to experts, the move is the Fed’s most aggressive attempt to curb inflation, even if it means a recession.
According to Ned Davis, a research organization, there is a 98% possibility of a worldwide recession. The organization was correct in many ways, including predicting a high chance in 2008 and 2010, which were historically awful years for many economies worldwide.
However, the firm does not rule out a recession without keeping in mind several elements. When economists warn about a crisis, they are primarily concerned with five important factors:
Value of US Dollar
The US dollar has a prominent role in the global economy. As a result, fluctuations in the dollar’s value will affect worldwide finance and global banking.
And the dollar’s value has risen to a new high, the highest in two decades; the answer is simply the Fed’s choice.
When interest rates go up, the dollar strengthens and becomes more desirable to investors. And, since March, the Fed has hiked interest rates, causing the dollar to parry with the pound and dwarf other currencies.
Furthermore, during times of crisis in other major economies, such as a war in Europe or a financial crisis in the United Kingdom, investors are more obliged to acquire dollars in the form of bonds.
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Stagnant local market sales
People are exhausted by rising prices. This means that as costs go up, people’s spending habits will become increasingly erratic.
For example, shopping is the number one engine of the world’s largest economy in the United States.
However, due to inflation and the Feds’ actions, US markets have little choice but to lift their pricing, discouraging Americans from acquiring services and goods.
Americans are saving more than expected
As the country gets closer to the Christmas season, firms anticipate an increase in sales and demand, as they do every year.
However, several corporations, like FedEx, believe that the present pattern indicates that the holiday season will be different than in the past.
“I think so. These numbers, they don’t portend very well,” the FedEx CEO explained.
“We’ve not seen the normal September uptick in companies posting for temporary help. Companies are hanging back and waiting to see what conditions hold,” said Julia Poltak, ZipRecruiter chief economist.
Entering the Bear Territory
Investors are concerned about where to put their money now that the economy is in upheaval, with bonds being heavily impacted.
Economists have compared the current stock market slide to the 2008 onset, which did not end well for the US economy.
Wall Street has lately experienced 20% or more drops from key market participants, including the S&P 500 and Dow, with the former witnessing a 24% decline for the year and the latter having at least a 20% decrease, implying that they are already in a bear market.
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Politics and war
The United Kingdom has been dealing with a lot in recent months, with new Prime Minister Liz Truss taking heat for her fiscal spending plans.
Like the US, the UK is suffering significant inflation rates, owing mostly to the Covid-19 pandemic and the standoff between Russia and Ukraine.
Politics and war have an influence on economies all around the world, particularly in countries embroiled in conflict, which are key actors in the global supply chain.
Russian gas price cuts, for example, have driven gas prices in the UK and neighboring nations to rise. As a result, electricity lines have become strained.
Photo Credit: StockMarket
Source: CNN
