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Why a Global Recession Is Unlikely

The wave of gloomy forecasts for the global economy that emerged earlier this year were derived largely from statistical analyses of past data. But these analyses did not adequately account for the impact and legacy of the COVID-19 pandemic.

NEW HAVEN – Earlier this year, predictions that a recession would soon grip the global economy were rampant. But, more than halfway through 2023, China is the only major economy that appears to be at significant risk of a prolonged slump. In New York and London, and across Europe, stock markets are soaring. In Tokyo, the Nikkei hit a 33-year high in June. While some economies are struggling, a global recession now appears highly unlikely.

An economic downturn can have many causes. For example, excessive consumer and investor confidence or very high levels of public spending can drive up aggregate demand to the point that inflation begins to rise, forcing policymakers, especially central banks, to intervene to cool an overheating economy. If they overdo it – say, by raising interest rates, and thus borrowing costs, too aggressively – they can push the economy into recession.

A recession can also arise from the supply side. When a particular sector or the economy as a whole is booming, suppliers ramp up production. But if demand begins to fall, supply can begin to build up, hampering and even halting growth.

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