Almost the whole world has recently been dealing with the problems of rising inflation and rising prices of almost all commodities and goods, which are in short supply everywhere. On top of this, there is still tension in the world in terms of the war in Ukraine and the constant threat of the reignition of the covid-19 pandemic.
In her interview with Reuters, Carmen Reinhart mentioned, among other problems, the slowdown in growth in China, which produces products for a large number of the world’s major companies. She also mentioned that reducing inflation while ensuring a so-called smooth landing for the economy is historically a difficult task and the risk of recession is a hot topic at the moment.
“What everyone is concerned about now is that all the risks have piled up on the downside.”
A smooth landing is a situation where economic growth slows at an acceptable pace so that it does not do much damage, especially in terms of unemployment. The opposite is a hard landing, where the economy slows down sharply, and many firms find themselves in trouble and are forced to lay off. Sometimes a hard landing can be caused by a central bank sacrificing economic growth in an attempt to stop high inflation.
Is this similar to what happened in 2008?
The global financial crisis in 2008 and 2009 mostly affected a few developed countries, and China was a strong engine of growth at the time. But the current crisis is much broader and China’s economic growth is no longer double-digit, Reinhart pointed out.
In an earlier article, we reported that the WB in May downgraded its global economic growth forecast for this year by almost a third, to 2.9%. She warned that the damage caused by the covid-19 disease pandemic has been compounded by the invasion of Ukraine by Russian troops and that many countries are now facing recession. She added that if downside risks materialize, global growth could slow to 2.1% this year and 1.5% next year.
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So if the negative scenarios come true, we could be heading into a nasty global recession. However, we believe that this difficult time is only temporary and the economy will gradually begin to stabilize and if a recession were to occur, it would not last long.