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Is a Global Recession Really Around the Corner?

While there are signs that the “everything bubble” is about to burst, leading economists’ predictions that the world economy is headed toward a major slump in the coming year seem premature. While hard times are almost certainly coming, the mainstream definition – two consecutive quarters of negative growth – is a very high bar.

CAMBRIDGE – The world’s leading economists spent most of 2022 convincing themselves that, if the global economy was not already in a recession, it was about to fall into one. But with the year’s end, the global slump has been postponed to 2023.

Clearly, the reports that the United States was in recession during the first half of the year were premature, especially given how tight the US labor market is. And, despite the confidence with which many again proclaim the inevitability of a downturn, the chances of one in the coming year are well below 100%. But, owing to the rapid interest-rate hikes by the US Federal Reserve and other major central banks, there is something like a 50% chance of a recession in 2023 and a 75% chance of it happening at some point during the next two years.

Europe, hit hard by soaring energy prices, is more likely to head into a recession, which conventional wisdom defines as two consecutive quarters of GDP decline. China, however, seems to be in even worse shape. It has the same problems as Europe, plus a collapsing property sector and a surge in COVID-19 cases, owing to the Chinese government’s recent decision to reopen the economy without a sufficient vaccination push.