Global Recession Looks Inevitable
With the economic outlooks for China and Europe both deteriorating, a global recession looks to be inevitable, says a Scotia Economics report. The combination of the effects of drought, strict pandemic controls, and turmoil in its residential construction sector have China on track for its weakest economic growth since 1980. At the same time, Europe is facing tougher economic conditions as the ongoing fallout from Russia’s invasion of Ukraine, a looming energy crunch, drought and wildfires, and rising interest rates portend recessions in that region as well. “With these major economic powers registering very weak economic performance, a global recession is assured,” the report said. Conditions are better for Canada and the U.S. with signs that inflation pressure has started to ease and, as a result, central bank rate tightening will take a break soon. It continues to view recession “as a risk, not a certainty,” noting that it has downgraded its forecasts for both countries due to weaker commodity prices and equity markets. Nevertheless, Canada is expected to register 3.1 per cent growth this year before slowing to one per cent in 2023. It forecasts that the Bank of Canada will stop raising rates at the 3.75 per cent mark in October and that the U.S. Federal Reserve will top out at 3.5 per cent in November. “In both cases, we anticipate that policy rates will remain unchanged throughout 2023,” the report says. This will allow time for the higher rates to bring inflation down closer to the central banks’ targets.