Why Recession 2022 is different.

 

We have been hearing about the Uncertainty regarding inflation growth, recession, and whatnot. The economic growth which was expected after the pandemic has mostly faded away, and the entire global economy is suffering from slow growth and high inflation for quite some time. The predictions say the worst is yet to Come. Well to get a clear picture, we need to look at what is happening. so just two years after the pandemic, the global economy is once again confronted with difficult challenges as growth slowed sharply due to high inflation. Fears of a global recession are growing not only to supply chain constraints but also high oil prices due to the Russia-Ukraine crisis which made things stiffer between 1970 and 2021. The global economy experienced five recessions that were 1975, 1982, 1991, 2009, and during the year 2020. Now in 2022, we might face another one starting with the U.S economy with its' high inflation. This High inflation is now suffocating the U.S economy's growth. This year's inflation rate peaked in June at 9.1 percent which was the highest in the last four decades.

 Inflation began to decline slowly to 8.2 percent in September. This high inflation is the result of increased money supply in the economy. During the pandemic, this money supply was in the form of reducing interest rates and injecting money into the economy. By the stimulus checks, you see that changes in the money supply can take months or even years to materialize in the economy, but this sudden injection has a ripple impact, which in this case is inflation. But this inflation can also be controlled by the fed by increasing the interest rate. You see when borrowing gets costly, people usually don't take loans due to high-interest rates, and the money supply in the economy shrinks which in turn helps curb inflation. That is what the fed and many other countries are doing now but there is a downside to rising interest rates. It starts the chain reaction of bad things in the economy. The interest rates go up, and the cost of borrowing also goes up. 

It gets difficult to take loans and repay the debts at a higher interest rate for many corporations and for governments as well. 

At the same time, the demand in the economy could also go down. So the corporations could lose their income and the government could lose the tax income. It starts with either recession or stagflation which is why this could be a worse recession than the one in 2008  because we see the government cannot assist defaulting corporations, banks, and other institutions. This time as the governments are already in deep debt due to high spending during the pandemic, yet rising interest rates are not just a problem in front of the U.S economy but also it is causing problems all over the World.

 As the U.S economy is the largest economy and the dollar is the world's reserve currency if the U.S raises interest rates the dollar strengthens while all other currencies weaken this is particularly bad for developing countries like India, Bangladesh, and Brazil which rely heavily on imports rather than exports. Other smaller countries with limited foreign reserves often go bankrupt. In fact, a few countries have already begun to feel the effects of the stronger dollar, to make things worse there is the crude oil crisis as you know Russia is the second largest producer of oil and due to Western sanctions they are not selling oil to the open market and this is causing a rise in crude oil prices this is also causing inflation around the world because many countries rely on oil for economic activity and rise in oil prices means higher transportation costs which automatically raises the price of every product.

 Europe the largest importer of Russian crude oil is specifically hit hard as it struggles to maintain economic growth due to high oil prices. Experts believe Europe is already in recession but wait everything is not going down. Economists are saying that the upcoming recession might be something different, particularly in the U.S.

As you know in the past recessions, there was one thing common in all of them that is when the recession hits many companies lay off employees to cut down their expenses as unemployment increases people start to save more which reduces the demand and creates a chain reaction in the economy. But in this recession, things are different people are not losing jobs but they are getting ones.

 The unemployment rate is not rising, yet it is constantly decreasing. It is something new that has never happened before. One of the reasons behind this is that the profit margins of several companies are at a nearly all-time high from the past few years and the amount of cash they have is more than four trillion dollars. Combined this is providing a buffer for the companies. Another reason is that it is easy to lay off employees but it's very hard to find new ones, yes you heard it right. The labor force participation in the economy is 40 years low and it is not only because of the pandemic it has been declining for a long-time. More people are leaving the labor force, more jobs are available and after the pandemic job vacancies have skyrocketed. How long this job market can sustain cannot be predicted now but if the economies went under a prolonged recession then we might see mass layoffs from companies. All the figures indicate a slowdown in global economic growth but no one is talking about China despite China being among the major contributor to global economic growth for several decades. China has been experiencing several events first is the zero coveted policy which forces them to close entire cities then there was a coal shortage that caused widespread power outages primarily affecting the manufacturing sector and disrupting supply chains. Second is the real estate crisis that is causing problems for Chinese Banks and the government and then there are rumors of a political crisis in the country. These issues are slowing the country's GDP growth and it is causing issues for many multinational corporations. It is forcing them to relocate their manufacturing base which may result in temporary price increases for many goods in the coming years.

  Every economic indicator, as well as major financial institutions such as the IMF and the World Bank, are warnings about a possible upcoming recession, and if nothing changes and if inflation does not fall the world may face one of the most difficult recessions it has ever seen. If that happens, it will not only push millions of people into poverty, but also it will change the world order as we know it today.

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