All right, friends: We made it. Chill the Champagne, get some of those silly 2023 glasses and Google the lyrics (again) to Auld Lang Syne. We're closing out a decidedly OK-ish year and heading into ... another one. No one knows what 2023 will bring us, but since this is a business newsletter, let's talk about the question keeping central bankers and CEOs up at night.
Will there be a global recession in 2023?
The answer, my colleague Julia Horowitz writes, may come down to three factors.
First up: central banks
Inflation is no joke, and even though price increases have started to ease in the US and Europe, central bankers are still on the war path. The Fed, for its part, is standing by its "around 2%" target. As of last month, the central bank's preferred measure of inflation was at 5.5%.
The trouble is, of course, the economy does what it's going to do and all the Fed can do is try to direct in the right path. If it raises rates too aggressively, or not aggressively enough, the Fed could collapse the strongest labor market in 50 years and plunge the economy into a recession. (That's just Reason No. 8,572 I don't envy Fed chair Jay Powell's job. Not many people know this but the Silver Fox of the Fed? His hair was jet black when he started this gig in 2018... I'm kidding, but it's still a really tough job.)
Then, there's the China factor
For almost three years, the Chinese government has implemented a strict zero-Covid policy, using centralized quarantines, mass testing and rigorous contact tracing. All of that has been abruptly rolled back following mass protests.
On the one hand, reopening the world's second-largest economy should spur growth. But in a country with almost no natural immunity, some analysts are worried the reopening is too much, too soon. An outbreak could overwhelm China's health care system and wreak havoc on the economy. Western officials are already adding restrictions on travelers from China over Covid concerns.
Energy prices
Russia's war in Ukraine is a huge wild card for the global economy, and for especially for Europe.
Europeans could face a natural gas shortage in 2023 if Russia cuts off all gas exports to the region and the weather turns colder.
Another unknown: The potential jump in demand for energy from China as its economy ramps back up.
"They're interlinked," said Diane Swonk, chief economist at KPMG. "One of the reasons energy prices are [lower] is because China is unusually weak."
Bottom line: Whether the world falls into recession or not, the next 12 months are likely to be difficult, Julia writes. Growth is slowing, and even if the world averts a technical recession, many countries may still endure downturns accompanied by painful rises in unemployment.
"The worst is yet to come, and for many people 2023 will feel like a recession," the IMF said in October, noting the slowdown "will be broad-based" and may "reopen economic wounds that were only partially healed post-pandemic."
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