As central banks around the world simultaneously raise interest rates in response to inflation, the world may be headed for a global recession and European Recession in 2023 and a series of financial crises in emerging markets and developing economies that would cost them, according to a comprehensive new study by the World banks.
The way down could be shallow or steep, but either way, the European Union and Britain could begin to slide into European recession.
Britain’s economy shrank by 0.2% in July, August and September compared with the previous three months, the Office for National Statistics reported on Friday. The decline is expected to continue and spread across the continent by the end of the year.
When European Countries will Enter in European Recession
Many countries are likely to enter European recession in the last three months of 2022, Paolo Gentiloni, the EU’s economy commissioner, said on Friday. “The EU economy is at a turning point,” he said. “Recent survey data points to contraction for winter.”
Bonus Article: Recession vs Depression & Great Depression vs Great Recession
But while central bankers in Britain warned of a “prolonged” recession of up to two years, the EU predicted the 27-member bloc would face a “short-term and not very deep” European recession.
Indeed, Gentiloni said he expects the EU to end 2022 with a better-than-expected 3.3% growth, although that total is likely to weaken significantly to just 0.3% next year.
Russia and Ukraine War Impact European Recession
The differing outlooks illustrate how the economic impact of the pandemic and the Russian invasion of Ukraine is having an uneven impact on countries in the region.
Britain and the EU are suffering from the double whammy of rising inflation and slowing or falling growth. The war and retaliatory sanctions against Russia, one of the world’s biggest energy and grain producers, have caused fuel, food and fertilizer prices to rise worldwide.
Impact of Covid-19 on European Recession
Pandemic-rooted supply chain disruptions and ongoing COVID-19 lockdowns in China — most recently in the manufacturing hub of Guangzhou — have added to the pile of economic woes, as have climate-related disasters. ..
In Germany, Europe’s largest economy, the annual inflation rate reached 10.4% in October, according to one measure. In Britain, inflation hit 10.1% in September, the highest level in 40 years, and is expected to rise further ahead of its peak. Call-in radio talk shows on the BBC are dominated by people who fear they can afford to heat and light their homes.
“We have a tough road ahead of us,” Jeremy Hunt, the Chancellor of the Exchequer, said on Friday, “a road that will require extremely difficult decisions to restore confidence and economic stability.”
Preliminary estimates from the Office for National Statistics showed that the slowdown in Britain was widespread – including across the manufacturing and services sector – and meant that the country’s gross domestic product, or total output, remained below pre-pandemic levels. The decline was particularly sharp in September, down 0.6% from the previous month, although the figure was affected by the death of Queen Elizabeth II, which triggered widespread, unplanned business closures.
The quarterly drop was smaller than expected – economists polled by Bloomberg had expected a 0.5% drop – and 10-year UK government bond yields fell briefly after the announcement before rising slightly to 3.33%.
A recession is traditionally defined as several months of significant decline in economic activity.
The Bank of England underlined its determination to stem the rise in inflation by raising interest rates, even at the risk of plunging the economy into recession, although it indicated it was unlikely to raise rates as high as traders had expected. Last week, the Bank raised its key rate again and predicted that the UK economy would shrink in the second half of this year and continue to shrink until mid-2024.
Main Reason of European Recession 2023
Main Reason of European Recession 2023 is Higher interest rates, which make it more expensive to borrow money for mortgages and investments, limit spending by businesses and consumers and can increase unemployment.
But the British economy is also suffering from a number of self-inflicted wounds from the governing Conservative Party. The widely criticized economic plan proposed by Liz Truss, then prime minister, in September, which included steep, unfunded tax cuts and big spending increases to help households afford rising energy bills, sent financial markets into turmoil. The economic instability that followed resulted in a stunning change of policy and Truss’s resignation.
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Rishi Sunak, the new prime minister, and Hunt will announce their economic plan next week, which is expected to include tax increases, spending cuts and debt reduction. The package “will reinforce Britain’s gloomy economic outlook,” predicted Pantheon Macroeconomics.
There is also broad agreement among economists and analysts that Britain’s decision to leave the EU in 2016 was a major and long-term blow to its economy.
Very few EU countries are expected to enter negative growth next year, but the outlook for Germany, which was hit hard by the loss of a Russian gas pipeline, is grim. The EU estimates that its economy will shrink by 0.6% in 2023.
Inflation across Europe is expected to persist at higher levels than previously expected. The strong labor market remains what Gentiloni called a “bright spot.”
The picture is murkier in Britain, where long-term illness is keeping around 2.5 million people out of the workforce, leaving employment lower than before the pandemic.
List of 4 Main Reasons of European Recession Next Year
- Loss of confidence in investments and the economy. Loss of trust forces consumers to stop buying and go into defensive mode.
- High interest rates.
- Stock market.
- Falling housing prices and sales.