Global recession risks: what is it and how to deal with it?

First modification: 10/18/2022 – 14:11

The World Bank and IMF have repeatedly warned that the world could be approaching a global recession.

Recession is considered to be the decrease in economic activity during a segment of time. Some experts also point out that a recession occurs when the variation rate of the Gross Domestic Product (GDP) of a country is negative for two consecutive quarters.

“Recession means that GDP activity growth is lower and recession is negative growth. For ordinary citizens, this means that there are fewer jobs, in the sense that they have to look for a new job, they are going to have more difficulties and some are going to have to lose their jobs because there are not as many opportunities as we had before, that happens in times of adjustment of the economy, which is what I think will happen next year”, Ilan Goldfajn, director for the Western Hemisphere of the IMF, said in an interview with France 24 in Spanish.

The head of the international body, Kristalina Georgieva, said in September that countries that make up about a third of the world economy could experience at least two consecutive quarters of contraction in 2023.

The situations the world has been through this year would definitely lead to a recession. These include the constant increase in interest rates that central banks have used to try to reduce inflation, the war in Ukraine, energy prices and, one of the most recent situations: the cut in oil production that OPEC+ announced on October 5, in which it defined a reduction of up to 2 million barrels of crude oil per day starting in November.

What awaits Latin America?

As happened during the first months of the war in Ukraine, where several Latin American countries had an increase in their exports due to the inputs produced in the region; With the rise in global prices, Latin America would experience significant gains in the event that the economic crisis knocks on the doors of the main powers.

“The rise in prices means that the products that these countries are exporting generate more dollars. And that is good for the balance of payments, you have more money, you have more reserves, you can import more. And it also has an impact on the economy, because the economy is left with much more capacity to consume, to invest at that time, so that is what we call a shock in positive terms and that is what happened. Those who sell the commodities can sell them at a higher price and that ultimately benefits the entire economy,” Goldfajn commented.

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IMF recommendations to avoid a recession

The World Bank assured in September that if the supply interruptions of several inputs due to the war in Ukraine are not reduced and the pressure in the labor market does not decrease, the underlying world inflation rate, without including the changing energy data, it could be around 5% in 2023, almost double the average of five years ago.

The IMF, for its part, has said that there is a 25% probability of a global recession, but its officials and economic analysts have repeatedly stressed that the structure of the markets and the solidity of the banks today can allow the economies of several countries to resist the recession or at least be better off after the crisis.

“We saw that the countries that have more reserves, that have more independent central banks and that have less spending – that is, a lower need for financing – and the countries that have a debt in foreign currency are the countries that are going to have more resilience. , they will be able to be stronger facing the external shock that we are going to go through, ”explained Goldfajn.

With Reuters, AP and local media