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Is a recession inevitable? What 4 economists think


More and more economists are seeing a ghost called recession arrive.

The squandering of economic stimulus from the pandemic, bottlenecks in supply chains from China’s restrictions and Russia’s invasion of Ukraine, among other factors, have pushed inflation to levels not seen in decades.

To stop it, the central banks resort to the manual and raise interest rates , while the stock markets -with the US indices as a reference- react with prolonged falls that reflect the little faith of investors in what lies ahead.

And what awaits us is, according to many, a recession: a depression in economic activities that translates into negative growth in gross domestic product (GDP).

In general, a term of two consecutive quarters of economic contraction of the GDP is established to decree a “technical recession”.

Seven in 10 economists in the United States believe it will come this year or next , according to a recent survey by the Financial Times and the University of Chicago Booth.

The survey was conducted in early June, before the latest “black week” in stocks and the new rate hike, so the ratio is likely to have risen.

Falling into a recession has bitter consequences: the collapse of investment , consumption and transactions causes company closures, cuts, massive job losses and inability to pay debts that can lead many to bankruptcy.

BBC Mundo has asked four leading economists if they believe there will be a recession in the US and in the world in the near future.

“In 2023, with a 65% probability”

David Wessel, Economist

David Wessel, Director of the Hutchins Center for Fiscal and Monetary Policy at the Brookings Institution (Washington DC)

“Predicting recessions is a difficult exercise. They usually come from unforeseen shocks, and sometimes recessions that experts predict with complete certainty later don’t happen.

“However, I see a substantial chance of a US recession, about a 65% chance, in 2023. The reason? Federal Reserve (Fed) Chairman Jay Powell doesn’t want his legacy to be destroy the progress his predecessors made in bringing inflation down and keeping it low.

“For now the Fed clearly needs to raise interest rates to slow demand, relieve upward pressure on prices and prevent inflationary psychology from taking hold.

“However, at some point the Fed will be faced with much more difficult decisions , whether to keep raising rates or freeze them, as the economy slows and inflation declines but falls short of the 2% target.

“There will be good arguments for either option. I anticipate that Powell’s Fed will err on the side of tightening rather than easing and therefore a recession is likely, although moderate.

“I hope I am wrong, that all the problems in global supply chains are resolved, that the lingering economic effects of Covid wear off, and that we (and the Fed) get some much needed good luck.

“But I don’t think that’s the most likely outcome.”

“Early Next Year”

Gabriel Gasave, economist

Gabriel Gasave, Research Associate at the Independent Institute’s Center for Global Prosperity and Director of (Oakland, California)

“I dare to say that at some point, possibly at the beginning of 2023, we will be facing a significant recessionary process both in Europe and in the United States.

“It will not be because of the pandemic, its supply chain disruptions, the Russian invasion of Ukraine, food shortages, or rising energy prices.

“It will be basically because, to put it in the terms of the Austrian school of economics, the fictitious boom process driven by governments through tremendous monetary expansion will come to an end. The boom will end and the depression will ensue.


“For now, the northern hemisphere, with the arrival of summer and the end of the year festivities at the end of the second semester, I estimate that it will continue with a moderately reasonable level of activity.

“People will travel, spend and many will enjoy those financial assistance checks that governments in electoral campaigns during the pandemic distributed left and right. But the parties do not last forever , as no elite athlete can perform forever under the effects of doping.

“At some point it must return to the way it was before, things must be honest and many economists call that honesty a depression, when in truth it is a return to the natural order of things.

“It is also true that, given that US debt yields are now increasing, international capital will have a greater attraction in returning to the United States.

“Therefore, it will be necessary to see to what extent the global capital flows that arrive, together with an appreciation of the dollar and the devaluation of the rest of the currencies, affect the level of internal activity.”

“Probably later this year”

Lindsey Piegza, Economist

Lindsey Piegza, Principal Economist and CEO of Stifel Financial (Chicago)

“The Federal Reserve has renewed and increased its commitment to control inflation, raising interest rates by 0.75 points in June and putting on the table a possible new increase of another 0.75% for July.

“Although President Joe Biden declared last week that the Fed is not trying to induce a recession, this fast track will almost certainly produce, probably by the end of this year, negative growth at best, or stagflation at worst.” .

“Consumers are still suffering from high prices as supply chains remain disrupted and overseas conflicts linger. And now that the Fed is raising rates at a proposed pace of around 4%, or maybe higher, it must also grapple with effects of a weaker economy.

“The accelerated rate hike strategy will incur a significant cost to the average citizen and the US economy more broadly, with limited impact in cooling supply-side pressures.

“In the end, raising the cost of capital reduces consumption and investment, which relieves pressures on the demand side – this already happens and manifests itself in a declining pace of sales – but it can hardly correct the restrictions on the supply side as a result of the aftermath of covid-19 or an international conflict”.

“It May Not Happen”

Andres Moreno Jaramillo, economist

Andrés Moreno Jaramillo, economist, independent financial advisor and stock market analyst (Bogotá)

“Some economists see that interest rates are rising, that we are coming from a very sharp fall with a recession, and they believe that this cycle is going to return. Of course it is possible, but to the extent that geopolitics does not worsen with more conflicts , more wars, more shortages, more covid, there may not be a recession.

“It is not yet known. Precisely the United States has taken a long time raising its interest rates so as not to cause a recession. Those interest rates at a time when the economy is very hot can generate a small recession.

“If there were to be one, it would be very light and I would rather think that they are going to put all the mechanisms in place so that it does not happen. There are too many events, too many geopolitical things that can change any economic forecast, that is why you have to be very cautious.

“The economy of countries moves in cycles. Both interest rates and economic recessions are part of those cycles, which is not serious as long as there is a volatility that is not very pronounced.

That’s what the central banks and economic policy are for: so that all those cycles are carried out and the economy is not going to grow much because it can generate inflation, nor is it going to fall much because it can generate unemployment, depression and other consequences.

“What we have just experienced with covid-19 is something new in the world . Almost all countries had negative growth and that recovery brings strong ups and downs; it is the volatility we are talking about, but it is less and less.

“I think the worst is over and the US is facing, like everyone else, inflation, and that inflation has to slow growth a little bit and slow it down a little bit, even going into negative numbers. That’s not so bad”.



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Joshua Smith

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