2023 Economic Forecast-Recession Very Likely

The “hazardous decade” has been marked by an international epidemic, Russia’s invasion of Ukraine, and the resurgence of inflation. These events will likely lead to a global recession in 2023, and the long-term effects of these events on the global economy are difficult to predict. The economic growth in the decades following 1990 was driven by factors such as cheap labor, cheap energy, inexpensive transportation, and a largely tranquil geopolitical era. However, these factors have been disrupted in recent years, with labor becoming expensive and scarce, energy prices tripling, and war breaking out in Europe. The US, Europe, and Japan’s central banks have kept interest rates low, but with the resurgence of inflation, they have begun to raise interest rates rapidly, impacting the prices of long-term borrowing for firms, individuals, and governments. The impact of these changes on governmental budgets, consumer spending, and business investment is a concern for 2023. Global corporations are trying to figure out how to overhaul their complex supply chains and how to respond to a world where history seems to be turning against them. Additionally,  the increase in borrowing costs has led to declining home values in many nations as real estate is being revalued to reflect increased mortgage rates.

Catalysts of Rising Rates and Deflating Assets in 2023 are Very Likely to Cause a Recession

  • Rising interest rates can lead to an increase in borrowing costs for individuals, businesses and governments, making it more expensive for them to borrow money. This can lead to a decrease in consumer spending, business investment and government spending, which can slow down economic growth.
  • Lowering housing prices can lead to a decrease in housing wealth for homeowners, which can reduce their ability to spend money on other things. This can lead to a decrease in consumer spending, which can slow down economic growth.
  • Lowering housing prices can also lead to a decrease in the construction and real estate industries, which can lead to job losses and a decrease in economic activity.
  • Additionally, if a large number of homeowners find themselves in a negative equity situation, where the value of the property is less than the outstanding mortgage, it can lead to an increase in delinquencies and defaults on mortgages. This can cause a ripple effect on the economy, reducing the value of mortgage-backed securities and putting pressure on banks and other financial institutions that hold them.
  • Lastly, it can also cause a ripple effect on the banks and other financial institutions that hold mortgages, who may be impacted by a decline in home values and put pressures on financial institution’s balance sheets and disturb financial markets.

 

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