As global inflation remains the highest it’s been in several decades, about one-third of the global economy is expected to contract this year or next. In its October 2022 World Economic Outlook (WEO): Countering the Cost-of-Living Crisis, the International Monetary Fund (IMF) projects global growth will remain at 3.2% in 2022, unchanged from July’s forecast, and will drop to 2.7% in 2023, a 0.2% downgrade from that projection. Global inflation is expected to rise to 8.8% in 2022 but decline to 6.5% in 2023 and to 4.1% in 2024.
The world’s three largest economies (the US, the EU, and China) will face slowdowns into next year. The Russian invasion of Ukraine has created an energy crisis in Europe and will reduce growth in the euro area to 3.1% in 2022 and to 0.5% in 2023. In China, growth is expected to stall to 3.2% in 2022 and to 4.4% in 2023 because of continued coronavirus lockdowns and the collapse of the country’s housing market, and in the US, the Federal Reserve’s successive interest rate hikes will drop growth to 1.6% in 2022 and to 1% in 2023.
These slowdowns have contributed to rising food and energy prices, and many households are experiencing what the WEO calls a cost-of-living crisis. In all, the IMF says the world economy is experiencing its weakest growth since 2001, save for the slowdowns experienced during the coronavirus pandemic and the 2008 financial crisis, and warns that global recession is on the horizon. “The worst is yet to come, and for many people 2023 will feel like a recession,” writes IMF Chief Economist Pierre-Olivier Gourinchas in the report.
Against this global backdrop, experts predict that a US-specific recession is likely within the next year. Despite the Federal Reserve’s aggressive efforts to raise interest rates five times since March 2022, US inflation persists, with the consumer price index rising 8.2% between September 2021 and September 2022. And while the country added 263,000 jobs in September, the US labor market shows signs of cooling off after adding 315,000 jobs in August and 528,000 in July.
Bloomberg Economics model predicts a 100% likelihood of a recession by October 2023, while a separate Bloomberg survey of economists returned the more measured prediction of 60% likelihood. And some experts think the US is already in hot economic water: 11% of economists surveyed in early October by the National Association for Business Economics believe the country is already experiencing a recession. There are signs a recession will be mild and short, as predicted by a majority of global CEOs polled by KPMG. US unemployment remains low at 3.5% in September 2022 and likely will not skyrocket in a coming downturn.
As in any recession, retail, hospitality, and other service industries will take the most immediate hit. While US retail sales in September were unchanged from those in August, customers have already started to cut back on large purchases like electronics, appliances, and cars. After the pandemic-induced housing boom, new builds and existing home sales are expected to decline into 2023 as buyers face higher mortgage rates, with some experts estimating housing prices to drop by 20%. As inflation remains high, institutions and laboratories will have less cash available to purchase new analytical instruments. However, analytical instruments and related chemicals may be needed to respond to the energy crisis spurred by Russia’s war in Ukraine. Global coal demand has increased as natural gas prices have soared, and atomic spectroscopy instruments will be needed to test for environmental pollutants.
With the continued fallout from the war in Ukraine, stubbornly persistent inflation, and plunging global growth, the WEO predicts that recession is on the horizon. “The global economy is headed for stormy waters,” writes Gourinchas.