Experts continue to discuss possibilities and scenarios in the first days of the new year on whether 2023 be a year in which the main and aftershocks of the “two black swans,” namely the COVID-19 pandemic and the ongoing Russia-Ukraine war, which made its mark in the 2020-2022 period, will be compensated to a certain extent or will it be a year that will present the world economy with new challenges.
The International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD) and the European Central Bank (ECB) economists highlight their expectations of a loss of momentum in the global growth dimension in 2023 that may even remain below the growth rate in the 2.5% and 3% band, which is the “recession limit.” This means the fact that the risk of a recession on a global scale has become a strong possibility. IMF Managing Director Kristalina Georgieva reiterated her warning that one-third of the countries will be in recession this year.
Given the economic slowdown observed in the U.S., the EU and China, the IMF chief also reminded us it is easy to foresee that 2023 will be a more difficult year than 2022 in terms of both the world economy and global trade. Also, millions of people will encounter economic crises even in countries that are not in recession.
Here, the risk of "four mistakes" stand out for the world's largest economies. First, depending on the ongoing discussions on the coronavirus pandemic, some countries, especially China, have reinstated the restrictions, quarantines and closures for COVID-19. Such a step may bring up new challenges both for those countries and for the global supply chain. The second risk is that leading central banks continue to increase interest rates although all international economic institutions point to the risk of a “severe recession.”
This situation poses a serious financial risk for hundreds of millions of people who have directed their savings to the stock markets to sustain the public sector and especially the real sector debts to keep the “global debt spiral” afloat.
Indeed, because of his early prediction of the 2008 global financial crisis, a prominent Turkish-born Iranian-American economist known as “Dr. Doom,” professor Nouriel Roubini, also reiterates his warning that if central banks are determined to follow high-interest rates and contractionary monetary policies in 2023, the probability of a severe financial break will increase significantly.
This brings up the risk of a third error, ending the public support given to the real sector and the working people. In other words, the mistake of “tightening monetary and fiscal policy together.”
International management consultancy company McKinsey points out that the real sector and employee support expenditures of the governments of the largest economies to compensate for the main and aftershocks of the COVID-19 pandemic in the 2020-2022 period have reached $10 trillion.
For this reason, it is very important that the said public support continues uninterruptedly in 2023, that the real sector is kept alive, and that panic decisions are not taken regarding COVID-19. Otherwise, both the termination of public support and reapplying of drastic measures against the pandemic would cause “zombie companies” in the world's largest economies, which would be another problem for the country's economy.
The fourth and final mistake that the largest economies can make for 2023 is that some of the top economies could panic and resort to the shield of “protectionism” in order to stop other rival economies. This situation will further deepen the global recession with its negative impact on global trade and supply chain.
We hope leading economies stay clear of these mistakes.
