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Which countries would be most affected by a global recession?

Posted by Tony on Wed 28th Dec, 2022 -

It's become clear to many that there is no avoiding what's coming in the form of a widespread global downturn. Some economies may be more affected than others, and we’ll take a brief look at how and why.

If you like to keep your portfolio diverse by trading and investing in emerging or established international economies, it's worth doing so with the help of a regulated and reliable broker, such as easymarkets, to give you the tools and resources to do so with confidence in these uncertain times.

Inflation, interest rates, recession, and stagflation

If you’ve been paying attention to global events in the last six months or more, you’ve heard these terms bandied about a fair bit.
Inflation, caused by a number of factors over the last two years, including the pandemic, China’s COVID-zero policy, the Ukrainian conflict, government stimulus, supply chain issues, labor shortages, difficulties with energy prices and supply, and much more, has been out of control in many countries this year.

Central banks have been simultaneously attempting to bring inflation to heel by raising their headline rates and the cost of borrowing money, which in theory should cool demand to bring it back in line with supply. The problem is, if inflation still remains stubbornly high, and the banks overcook the interest rate hikes, the global economy will likely grind to a halt, unemployment will rise, many businesses will go broke, and a downward cycle could ensue.

Developing nations might be in more trouble than others

According to the UN, even while the global recession will affect all areas, emerging nations are especially concerned. Their average economic growth rates are forecast to dip below 3%, which would strain public and private budgets and harm job prospects.

In its Trade and Development report, UNCTAD predicts that middle-income countries in Latin America and low-income countries in Africa will register some of the sharpest slowdowns this year. Countries like Zambia, Suriname, and Sri Lanka that were already showing signs of debt distress prior to COVID-19 are taking some of the biggest hits, and climate shocks in places such as Pakistan will further threaten economic stability.

The UN blamed the recession on excessive monetary policy tightening by institutions like the Federal Reserve and suggested windfall taxes, harsher commodities' speculation regulations, and supply-side restraints to avoid worsening the situation.

Three biggest world economies slowing down

A World Bank study that analyzes the current trajectory of economic activity and proposes possibilities for 2022 to 2024 based on experiences from past global recessions, showed that the world economy is now experiencing its greatest decline since 1970.

According to the same study, worldwide consumer confidence has fallen faster than before the past two global recessions, and this year, the world's three largest economies—the US, China, and the Eurozone— have slowed especially quickly.

The study concludes with a suggestion that central banks should keep inflation under control, but could do so without precipitating a global recession. Moreover, policymakers must work together.

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