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Will we avoid a global economic recession?
In the world of aviation, a soft landing is one that is made with the proper speed and angle and without turbulence.
In the current state of the world economy, a soft landing is achieving a slowdown in inflation without triggering a recession.
It is quite an art, considering that the main tool that central banks around the world have used to lower inflation has been to raise interest rates, that is, to make the cost of money more expensive, which in turn affects economic growth.
Thus, continuing with the same metaphor, a recession economical Caused by rising interest rates it would be a forced landing.
This has been the great debate among economists in recent months: will there be a recession or not?
This week, the International Monetary Fund (IMF) sided with those who predict a soft landing for the global economy in 2023 following the turmoil of the last 3 years.
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“The outlook is less bleak,” said Pierre-Olivier Gourinchas, the IMF’s chief economist.
“We are not forecasting a global recession right now,” he added.
“Adverse risks have moderated.”
Thus, according to the IMF, neither the United States nor the European Union will fall into a recession in 2023, although The United Kingdom would not be able to avoid it.
The battle once morest the inflationary wave
Pierre-Olivier Gourinchas stated that “The fight once morest inflation is beginning to bear fruit”warning that, in any case, the central banks – in charge of raising or lowering the cost of money – must continue with their efforts.
The truth is that in recent months there has been a decrease in inflation around the world, as the recovery following the covid-19 pandemic was consolidated.
The United States, for example, set an all-time high when annualized inflation escalated al 9.1% last June, the maximum level in the last 40 years.
Since then, the cost of living in the world’s largest economy has been falling to 6.5%, although it is still far from reaching the 2% target.
image source, Getty Images
Pierre-Olivier Gourinchas, the IMF’s chief economist, said the global economic outlook is “less gloomy.”
The authorities of different countries have embarked on a similar battle, trying to cool the economy through a decrease in demand.
The logic behind that policy is that when it becomes more expensive to borrow money from the bank, companies invest less and people buy fewer products. That cools the engine of growthdecreasing demand and containing prices.
Conversely, if rates rise too little and too slowly, or the increases come too late (a controversy that had the US Federal Reserve once morest a rock and a hard place), the inflationary spiral gets out of control.
With prices rising, workers demand wage increases, which in turn drives up those same prices, leading to a self-perpetuating cycle.
obstacles in the way
Like tightrope walkers, central banks continue to search for a balance that allows them to reduce inflation without triggering a recession, even though they face obstacles.
image source, Archyde.com
An escalation of the war in Ukraine puts the soft landing at risk.
Among them, a potential escalation of the war in Ukraine, the stagnation of China’s recovery, high levels of public debt and geopolitical fragmentation.
The soft landing in Latin America
In a climate of uncertainty, the Economic Commission for Latin America and the Caribbean (Cepal) projected in mid-December that economic growth in Latin America and the Caribbean would only reach 1.3% this year.
The organization’s economists have not predicted a recession, that is, a hard landing for growth. They speak of a “deceleration” given the increases in interest rates, greater limitations on fiscal spending, lower levels of consumption and investment, and a deterioration in the external context.
One of the challenges facing the region, they argue, is the high levels of indebtedness, something that directly affects public spending, another important engine of economic growth, financing of social programs and job creation.
Various estimates suggest that Chile it might be the only country in the region facing a recession this year.
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