Now, Xi Jinping may be preparing for his coronation, but like all leaders, all world leaders, he faces a challenging period ahead. Why do I say that? Because the recession is around the corner. A few months back, we were discussing the possibility of a recession and now the topic has changed. It’s not a question of if there will be a recession, it’s a question of how deep will it be.
Let me now show you some of the warning signs. Number one top corporate leaders are already bracing for the worst. Consulting firm KPMG polled 400 business leaders in the United States. 91% of them are predicting a recession. Only 34% are expected to be mild and short.
The rest, almost 66%, are predicting a longish one. A long recession at that. Now, business leaders are well placed to make these forecasts. They track the job market, they know all about debt and investments. And right now they are predicting a painful recession.
The next big question how are they preparing for it? Most companies brace for recessions and cost cuts. And more often than not, that means firing people. Mid level companies are planning exactly this. A recent survey found that 25% of all such firms are firing workers.
In fact, some have already begun the layoffs. Others are planning it in the next twelve month cycle. Now, this is the biggest indicator of a looming recession. Sort of like flashing red lights. Remember, during the recession of 2008, america’s unemployment rate doubled. It rolls from 5% to 10%. The same thing happened during the 2020 lockdown. The US unemployment rate topped 14.7%.
The question is, will 2023 be the same? Let me now tell you what Goldman Sachs is predicting. They believe that US unemployment will increase from three 6% to 4%. So not really a massive increase, but still substantial. Let’s tell you what’s happening in India. It is also going through a similar churn. Major It companies are reportedly revoking offer letters. This includes the likes of tech mahindra, Wipro, and infosys. All these companies recruited freshers from colleges. They put them through interviews and tests, and even gave them offer letters. But now, almost four months later, the offer has been withdrawn. The reason? Officially, they say it’s because of eligibility criteria and company guidelines. But experts say it’s because of the slowdown. Many of these recruits are now speaking out on social media.
Coming back now to the warning signs, even UN agencies have started sounding them. I’m talking about Angad. The UN Conference on Trade and Development. On Monday, the body released a new report on the global economy. It is titled Development Prospects in a Fractured World.
The whole report is pretty long, but let me show you the big takeaways and the highlights.
Number one :
The world is headed towards a recession and prolonged stagnation.
Number two :
The looming crisis could be worse than the 2008 recession.
Number three :
The crisis is the result of bad policy and misplaced political will. Number four developing countries will face the brunt of it, especially those in Latin America and Africa. The report also mentioned some numbers the global economic growth is expected to fall to 2.5% in 2022 and 2.2% in 2023.
The slowdown could cost us 20% of global income. That’s around $17 trillion.
Next up is the debt crisis. 60% of all low-income countries are almost in debt distress, plus 30% of emerging market countries. These governments do not have the money to service their debt. And if things get worse, you could be looking at more Sri Lanka’s. Adding to their misery are of course the dollar currencies.
In 90 developing countries have weakened against the dollar, meaning their imports are more expensive. They are spending more dollars to buy food, fuel, and fertilizers, which means they are burning through their reserves. Not an ideal situation at all. Since the UN is calling this crisis policy-induced, is there any way out of it? Can we possibly avoid this recession?
The antique chief believes it is still possible. Let me now quote what she said focusing solely on a monetary policy approach, without addressing supply side issues in trade, energy, and food markets may indeed exacerbate the problem. So what is a young toad asking for? More pragmatic policies. For example, windfall taxes.
Multinational companies have used this crisis to boost their own profits. The best example is big oil. The UN wants governments to tax these extra profits. That would bring in some much-needed relief money. Secondly, curb speculation. Food and fuel prices have been volatile in the last year, and this has led to a speculation frenzy in futures contracts and commodity swaps. Let me explain. Usually, that’s not the case. People enter the agriculture market to buy the commodity, to take delivery of it. But now financial players have entered it.
They are looking to earn profits through speculation. They are not interested in actually taking delivery of the commodity. And the result is these demand and supply forces are not strong anymore. The market is becoming more and more volatile. The UN wants governments to tame just that.
And finally, the last point is job creation. I know this may sound strange. Usually, you need to have job cuts to drive down inflation. This will not only contribute to the clean economy aspect of it, but it will also create much-needed jobs.
