Experts warn of recession as global inflation goes over the roof

Key Takeaways:

  • Amid global inflation, experts are warning of a possible recession in the near future
  • Deutsche Bank, Goldman Sachs and Bank of England see recession on the cards
  • Inflation has caused job cuts, lower hiring and expensive menus
As countries battle inflation, fears of a global recession continue to grow. Banks warn of  unemployment, price hikes and energy shortages.
Major banks warn of recession as the global inflation rate soars. Image from Pixabay

YEREVAN (CoinChapter.com) – Fears of a global recession continue to grow. The U.S. Federal Reserve announced plans to tighten monetary policy by raising interest rates to fight inflation. The Bank of England, on the other hand, expects household disposable income to drop over 1%. Wall Street giants like Deutsche Bank and Bank of America have also projected major recessions by next year.

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In many countries, inflation is over the roof. For example, the U.S. consumer price index (CPI) jumped 8.3% in April from a year ago, more than the 8.1% estimated by experts. The spike marked the fastest increase since December 1981. A month earlier, the consumer price index rose to 8.5%.

The war in Ukraine accelerated inflation and recession fears

The pandemic, followed by the war in Ukraine, has disrupted global supply chains, causing energy, food, and fuel costs to rise. As a result of hyperinflation, households in the United States spend an additional $341 a month on essentials, according to an analysis by Moody’s Analytics senior director Ryan Sweet.

The continuous price rise has experts worried that a 2001-like situation might cause slower hirings and layoffs, resulting in higher unemployment.

Fed Chairman Jerome Powell announced a half-point rate hike to combat inflation in early May. Economists believe putting interest rates up will push borrowing costs higher, resulting in a fall in demand and, eventually, lower costs of goods.

However, at times of global inflation, such calculations do not always work as higher cost of raw materials results in higher manufacturing costs. As a result, prices of goods and services increase either way.

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In Australia, fuel prices jumped 35% in the past 12 months, the largest annual increase since 1990. Even grocery prices spiked 2.8% last quarter, the strongest quarterly increase in almost four decades.

Leading banks want you to worry about recession

Before Russia invaded Ukraine, the Bank of England had already painted a gloomy future picture. Inflation figures for March in the country were 7%. Since the war, it has intensified. As a result, the Bank of England expects to close the year above 10%, a 40-year high.

In addition, the household energy bill will go up by 40% by October, bringing the average bill to £2800. As a result, Andrew Bailey, the Governor of the Bank of England, expects peoples’ purchasing power to drop.

“The total real household disposable income is projected to fall by 1¾%(one and three quarter percent) in 2022 which, part from 2011, will be the largest contraction since 1964,” 

Bailey warned in a press briefing earlier this month.

However, the Centre for Economics and Business Research (CEBR) paints a gloomier picture. According to them, real household disposable income will drop by £2,320 per household in 2022. That is a 3% drop, more than twice as much as Bailey declared. 

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Deutsche Bank became the first major bank to forecast a major recession in April. According to the German multinational investment bank and financial services company, “We will get a major recession” soon. 

“We no longer see the Fed achieving a soft landing. Instead, we anticipate that a more aggressive tightening of monetary policy will push the economy into a recession,” 

Deutsche Bank economists wrote in the report to clients.

Goldman Sachs grades the risk of recession as “very high”

American banking mogul Goldman Sachs has worrying projections. Amid major sell-offs in Wall Street, which saw stocks plunge for several days, the bank urged companies and customers to get ready for a recession.

According to Goldman Sachs Senior Chairman Lloyd Blankfein, there is a “very, very high risk” of a credit crunch. Meanwhile, David Solomon, the bank’s Chairman and CEO claimed the organization’s anticipation of recession risk is higher than what they had predicted 12 months earlier.

“Our US economics team forecasts about a 30%-35% chance of recession in the next couple of years. We are going through a period when there is real inflation,”

 Solomon warned earlier this month. 

Besides banks and financial institutions, common citizens are also worried about the situation. According to a survey from Pew Research, most Americans see inflation as the biggest issue facing the country. The issue is so pressing that it far exceeds other serious concerns, such as gun violence and healthcare affordability.

As countries battle inflation, fears of a global recession continue to grow. Banks warn of  unemployment, price hikes and energy shortages.
Americans view inflation as the top problem facing the country. Credit: Pew Research

Tesla CEO Elon Musk is also worried about the current situation. According to him, the United States is “probably in a recession.

“It’ll probably be some tough-going for, I don’t know, a year, maybe 12-18 months,” 

Musk claimed.

Meanwhile, Amazon.com Inc founder Jeff Bezos has criticized U.S. President Joe Biden for his ‘wrong’ approach to tackling inflation.

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Inflation causes job cuts, lower hiring, & expensive menus

As the world recovered from the havoc Covid-19 created slowly, the International Labour Organization (ILO) gave bad news. According to the U.N. body, global employment will take at least until 2023 to recover to pre-pandemic levels. The ILO expected 207 million people to be out of work in 2022. 

“We are already seeing potentially lasting damage to labor markets, along with concerning increases in poverty and inequality,”

 ILO Director-General Guy Ryder said in a press release.

However, that was before Russia invaded Ukraine. Since the war, things have gone from bad to worse. Restaurants have to increase the prices on their menus while laying off workers to cut down costs. 

Other companies are finding it hard to find the staff at affordable prices. In Canada, for example, eateries and restaurants find it hard to keep their employees.

“We are looking for staff but you have to hire starting around the $19-$20/hr [mark] just to get them in the door because everyone else is offering about $17/hr. That being said, we do have to pay a premium for the staff we do have so we have raised our prices a little bit within this year to cover those costs,”

Chelsea Enns, co-owner of The Okanagan Eatery told Global News.

The situation in Asia is no better. In India, for example, annual wholesale price inflation climbed to 15.08% in April. This marks the 13th month in a row that the producers’ prices remain double-digits. Fuel prices in the country also jumped 38.66% in April. The previous month, the figure was 34.52%. 

With inflation eroding a huge chunk of people’s savings, the future remains uncertain.

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