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Will we avoid a global recession?
In the world of aviation, a soft landing is one that is done at the right speed, angle, and without turbulence.
In the current state of the global economy, a soft landing slows down inflation without causing a recession.
It is quite an art, given that the main tool central banks around the world used to reduce inflation was to raise interest rates, i.e. to make money more expensive, which in turn affects economic growth.
Thus, while continuing with the same metaphor, recession economic due to high interest rates It will be an emergency landing.
This has been the big debate among economists in recent months: Will there be a recession or not?
This week, the International Monetary Fund sided with those who predicted a soft landing for the global economy in 2023 after the turmoil of the past three years.
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“The outlook is less bleak,” said Pierre-Olivier Gournchas, chief economist at the International Monetary Fund.
“We don’t expect a global recession at this time,” he added.
“You have mitigated downside risks.”
Thus, according to the International Monetary Fund, neither the United States nor the European Union will fall into recession in 2023, although The UK will not be able to avoid it.
The battle against the tide of inflation
This was stated by Pierre-Olivier Gorencz “Fighting inflation is bearing fruit”warning that, in any case, central banks – which are responsible for increasing or decreasing the cost of money – must continue their efforts.
The fact is that in recent months there has been a decline in inflation all over the world, as the recovery after the Covid-19 pandemic has strengthened.
The United States, for example, set an all-time high when annual inflation escalated to me 9.1% last June, prof maximum level in the last 40 years.
Since then, the cost of living in the world’s largest economy has fallen to 6.5%, although it’s still far from hitting the 2% target.
image source, Getty Images
Pierre-Olivier Gourenchas, chief economist at the International Monetary Fund, said the global economic outlook was “less gloomy”.
Authorities in various countries have embarked on a similar battle, trying to cool the economy through lower demand.
The logic behind this policy is that as it becomes more expensive to borrow money from a bank, companies invest less and people buy fewer products. This cools the growth engineAnd reduce demand and contain prices.
Conversely, if rates rise too little and too slowly, or the increases come too late (an argument that the US Federal Reserve has pushed against in the face of a rock and a hard place), the inflationary spiral spirals out of control.
As prices rise, workers demand wage increases, which in turn cause those same prices to rise, creating a self-sustaining cycle.
obstacles in the way
Central banks, like tightrope walkers, continue to search for a balance that will allow them to lower inflation without causing a recession, although they face obstacles.
image source, Reuters
An escalation of the war in Ukraine is jeopardizing the soft landing.
Among them, a possible escalation of the war in Ukraine, a stagnant recovery in China, high levels of public debt, and geopolitical fragmentation.
The soft landing in Latin America
In a climate of uncertainty, the Economic Commission for Latin America and the Caribbean (CEPAL) predicted in mid-December that economic growth in Latin America and the Caribbean would reach only 1.3% this year.
The organization’s economists did not expect a recession, that is, a hard drop in growth. They speak of a “slowdown” given interest rate increases, increased restrictions on fiscal spending, lower levels of consumption and investment, and a deteriorating external context.
They argue that one of the challenges facing the region is high levels of indebtedness, Something that directly affects public spending, and another important driver of economic growth, financing social programs and job creation.
Various estimates indicate this Chili pepper It may be the only country in the region facing a recession this year.
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