NEW YEAR MAY BE THE YEAR OF RECESSION 2023.

According to IMF Global Forecast for this year is unchanged at 3.2 Percent and for next year projection is 2.7 percent which is down by 0.2 points from July expectations. The three largest economies i.e., the United States, China and the Euro area will continue to stall.

In United States, the growth rate will slow by 1 percent due to tightening of monetary and financial conditions. China has a continued lockdown and a weaking property due to which the growth forecast will be expected to around 4.4 percent. In Euro area the energy crisis caused by the ongoing war and the growth forecast would be around 0.5 percent in 2023.

In India, around 66% of CEOs feels that recession could happen in the next 12 months as compared to 86 percent CEOs globally. Bloomberg economists Anna Wong and Eliza Winger forecast a higher recession probability across all timeframes, with the 12-month estimate of a downturn by October 2023 hitting 100%, up from 65% for the comparable period in the previous update. The forecast will be unwelcome news for Biden, who has repeatedly said the US will avoid a recession and that any downturn would be “very slight,” as he seeks to reassure Americans the economy is on solid footing under his administration. 

Central banks should persist in their efforts to control inflation—and it can be done without touching off a global recession, the study finds. But it will require concerted action by a variety of policymakers:

• Central banks must communicate policy decisions clearly while safeguarding their independence. This could help anchor inflation expectations and reduce the degree of tightening needed. In advanced economies, central banks should keep in mind the cross-border spillover effects of monetary tightening. In emerging market and developing economies, they should strengthen macroprudential regulations and build foreign-exchange reserves. 
• Fiscal authorities will need to carefully calibrate the withdrawal of fiscal support measures while ensuring consistency with monetary-policy objectives. The fraction of countries tightening fiscal policies next year is expected to reach its highest level since the early 1990s. This could amplify the effects of monetary policy on growth. Policymakers should also put in place credible medium-term fiscal plans and provide targeted relief to vulnerable households.
• Other economic policymakers will need to join in the fight against inflation—particularly by taking strong steps to boost global supply. These include: 

·         Easing labor-market constraints. Policy measures need to help increase labor-force participation and reduce price pressures. Labor-market policies can facilitate the reallocation of displaced workers.  

·         Boosting the global supply of commodities. Global coordination can go a long way in increasing food and energy supply. For energy commodities, policymakers should accelerate the transition to low–carbon energy sources and introduce measures to reduce energy consumption. 

·         Strengthening global trade networks. Policymakers should cooperate to alleviate global supply bottlenecks. They should support a rules-based international economic order, one that guards against the threat of protectionism and fragmentation that could further disrupt trade networks.

If history is any guide, an inflation-triggered recession would be less severe than one caused by credit excesses.

Fundamentals Are Stronger

Beyond historical trends, several economic factors point to a less severe recession, should one come to pass:

·         The housing and auto industries are strong. Housing prices have been high and resilient, while inventories are tight and could fall even further with higher interest rates. For autos, production rates are below prior peaks due to semiconductor shortages. As supply chains clear, order backlogs could keep manufacturing activity uncharacteristically high for a recession.

·         Labor-market dynamics remain robust. Not only is the labor market tight, as defined by unemployment rates, but it is also showing record-high ratios of new job openings to potential applicants. This suggests that, rather than laying off current employees, companies may first reduce their open job postings, potentially delaying the hit to unemployment.

·         Balance sheets are in the best shape in decades across households, companies and the banking system. Moreover, catalysts for corporate capital spending appear strong, given current needs around energy infrastructure, automation and national defense that are not directly linked to the business cycle nor the Fed’s actions.

·         Corporate revenues may be more durable. Today’s stock-index composition shows a growing share of earnings attributed to recurring revenue streams, as more companies build subscription- and fee-based models.