Crises often occur without warning. But this time the scenario is different. With an unprecedented economic and social context, experts predict a worsening instability in the world economy.
The expectation in 2020 was that economies would improve as we recover from the Covid-19 pandemic. However, the prognosis for the global economy through 2024 is not encouraging.
The projections reveal a slowdown in growth even in developing countries (which generally have better rates), with expansion well below expectations. The most recent Global Economic Prospects report from the World Bank indicates a probable global crisis in the face of high inflation, equally high-interest rates, and reduced investments.
World Bank projections indicate that the global economy will grow by 1.7% this year, and by 2.7% in 2024. These numbers reflect a generalized situation that will impact markets on all continents, with low growth expectations for 95% of the first-world economies and approximately 70% of developing economies.
It is estimated that the global economy in 2024 will grow 6% less than the forecasted rate for 2020, the year before the Covid-19 pandemic exploded. In a more alarming context, this data highlights a significant concern for companies around the world: with such a weakened outlook, any adverse event can start a recession.
An increase in Covid-19 cases, military tensions between countries, or banking fragility with the collapse of banks like Silicon Valley Bank and the bailout of Republic Bank and Credit Suisse could be the push that’s needed. Events such as these can cause GDPs to plummet, real incomes to fall, unemployment to rise, and industries to become idle, with companies in various segments experiencing severe crises or even going bankrupt.
Although on a downward trend by the end of next year, inflation will remain above the rates obtained before the start of the Coronavirus pandemic. High inflation, coupled with projections of low economic growth in 2024, is expected to lead to decreased demand for emerging economies’ exports and depreciation of their currencies. Advanced economies are expected to have their growth slowed from 2.5% in 2022 to 0.5% in 2023.
In the last 20 years, declines of this magnitude preceded global recessions (in 2009 and 2020). For the US in 2023, for example, the worst economic performance out of recession periods in 53 years is forecast.
However, some believe that the crisis is inevitable, with or without major global unforeseen events. Tom Simons, an economist specializing in the financial market, predicts that we are entering a period of classic recession.
According to Simons, the rise in inflation and interest rates should lead to a significant drop in organizations’ profit margins, resulting in cost cuts that should begin with a reduction in the workforce. Simons believes that this worsening of the crisis will start from the middle of this year, affecting both advanced and developing economies.
On the other hand, opinions are beginning to split among scholars. The abnormalities of the current economic context may imply a different market behavior, leading to unexpected developments. Mark Zandi, Head of Economics at Moods Analytics, states that the simple expectation of a recession can lead to unexpected results.
According to Zandi, with everyone foreseeing and preparing for the crisis, an unprecedented phenomenon, the picture may develop differently, leading to a cooling of inflation and even a possible drop in the unemployment rate.
The certainty we have is that the crisis is here, after all, levels of economic growth like the current ones historically point to the emergence of another global recession. However, it is difficult to say what the extent of the damage and the impact on the different markets will be.
Thus, managers can only watch interest rates and carefully analyze how economic instability will affect different aspects of their business: from supplier relations to customers’ purchasing power. Only then will it be possible to take specific actions to help preserve margins without compromising production and market positioning over the next two years.
