The global economy’s deteriorating market circumstances are getting more obvious. The decline in currency values, the increase in commodity prices, and other events that have an impact on global supply chains are signs that a worldwide recession is about to start.
The question right now is not whether or not the globe will experience a recession but rather when it will.
After the Federal Reserve started adopting a more active position in dealing with the deteriorating economy in the United States by committing to interest rate hikes, experts concluded that an imminent recession became inevitable.
The decision, even if it may trigger a recession, is the Fed’s most forceful effort to combat inflation, according to experts.
According to the research company Ned Davis, the likelihood of a worldwide recession is 98%. The company has been correct in numerous instances, having predicted the outcome in 2008 and 2010, which were historically bad years for many economies across the world.
However, without taking into account a number of circumstances, the corporation does not definitively exclude a recession. When economists express concerns about a crisis, they primarily base them on five important factors:
Value of US Dollar
The US dollar is a significant economic force worldwide. Consequently, if the dollar’s value changes, it will impact global banking and international finance in many nations.
The dollar’s value has risen to a record high, the highest in twenty years; the simple explanation lies in the Fed’s decision.
When interest rates rise, the dollar gets stronger and is worth more to investors. Additionally, since March, the Fed has boosted interest rates, dramatically pushing the dollar closer to parity with the pound and making other currencies small.
Likewise, investors are more motivated to buy dollars in the form of bonds during times of crisis in other large economies, such as, for instance, a war in Europe or a crisis in the UK.
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Stagnant local market sales
Price increases wear out individuals. This implies that when prices rise, people’s spending habits become less and less obvious. The US economy, the largest in the world, is mostly driven by retail sales.
However, due to inflation and the Feds’ policies, US markets are obliged to raise their pricing, which eventually deters Americans from purchasing goods and services.
Americans are saving more than expected
Businesses anticipate an increase in demand and sales as the nation approaches the holidays, as is the case every year.
However, several businesses, like FedEx, claim that the present pattern may suggest that this year’s Christmas season would be different from previous ones.
“I think so. These numbers, they don’t portend very well,” said FedEx CEO.
ZipRecruiter chief economist Julia Poltak said, “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.”
Entering the Bear Territory
Investors are concerned about where to place their money in light of the current economic unrest, and the significant impact bonds are having.
Economists compared the recent stock declines on Wall Street to the 2008 occurrence, which negatively affected the US economy.
Major market participants like the S&P 500 and Dow have lately had 20% or more declines, with the former seeing a 24% down for this year and the latter with at least a 20% decline, which only indicates that they have entered the bear market.
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Politics and war
The United Kingdom has faced several challenges in recent months, including criticism of the incoming Prime Minister Liz Truss’ spending plans, the Covid-19 outbreak and the conflict between Russia and Ukraine which are mostly to blame for the UK’s high inflation rates.
Politics and war impact all economies, particularly those directly impacted, because they are key participants in the global supply chain.
For instance, Russian gas supply reductions prompted gas price increases in the UK and neighboring nations. In the end, this resulted in stressed power lines.
Photo Credit: StockMarket
Source: CNN
Opinions expressed by US Insider contributors are their own.
