Reports, newspapers, and international economic magazines suggest that the major economies in the world will experience a slowdown in growth. According to a published report by the United Nations Conference on Trade and Development (UNCTAD), the world is heading towards a long-term recession unless monetary and fiscal policies that control some advanced economies change quickly. The World Bank also warned that the global economy for 2023 is at risk, with high inflation rates and interest rates, decreased investment, and ongoing war in Ukraine. The International Monetary Fund (IMF) expects economic growth to decline to 2.7% in 2023 compared to 3.2% in 2022. This global slowdown could lead to a decrease in gross domestic product (GDP) that is less than what it was before the coronavirus pandemic and will cost the world more than $17 trillion in lost productivity. The Fund says that growth expectations for 2023 will be the lowest since 2001. The Chief Economist at the Fund, Pierre-Olivier Gourinchas, warned in statements to the British Financial Times that there is a possibility that global growth could drop to less than 1% in 2023.
The major economies of the United States, Europe, and China are experiencing low growth expectations. According to the World Bank, the United States will face a growth rate of no more than 1% in 2023, while growth in Europe is expected to approach zero, and China's growth is expected to be no more than 4.3% (Figure 1). It is also expected that the unemployment rate in the USA will be around 3%, with a continuing increase in the current account deficit to more than $800 billion in 2023.
Although the discussion is about how all regions will be affected by this recession, the alarm bells are ringing louder for developing countries, especially with the worsening problem of debt. The report also cites another reason for economic concern, with the increasing impacts of climate change, where losses and damages are increasing within weak economies that lack the financial resources to deal with disasters.
The UNCTAD warns that excessive monetary tightening and insufficient financial support could expose the economies of developing countries to further consecutive crises. It is expected that middle-income countries in Latin America and low-income countries in Africa will suffer the effects of this slowdown, with the possibility that the problem of debt default will surface.
The Director of the International Monetary Fund, Kristalina Georgieva, warned, in her statements, that the global economy will witness difficult conditions in 2023, as economic stagnation and continued high levels of inflation will be its most prominent feature, and this is at a time when its engines, that is, the American, Chinese and European economies, have witnessed a significant slowdown since the last quarter in the last year.
These warnings align with other bleak forecasts released by a number of international financial institutions and European central banks, which also see the likelihood of a global economic recession very possible in 2023.
The billionaire and American investor Stanley Miller, who gained fame in 1992 after betting on the collapse of the British pound and making gains of up to ten billion dollars, says "If we don't see an economic recession in 2023, it will be like a miracle," because the expected growth scenario for next year will be 2.4% at best and could slow down to 1.2%, the same level of growth that existed during the global financial crisis in 2008.
War in Ukraine
The war in Ukraine is weighing heavily on the global economy, particularly in regards to grain supplies. The outbreak of war has led to higher prices for food and fertilizers, harming importers and prompting many countries to impose restrictions on exports. Around 345 million people are at immediate risk of severe food insecurity as a result. According to the World Food Programme, over 828 million people around the world go to bed hungry every night. The countries most affected are those that depend on food imports from Ukraine and Russia, amounting to 48 countries, mostly low-income countries[1].
Source: International Monetary Fund data.
Inflation rates and global debt
Inflation is considered a global phenomenon that has been exacerbated by the war in Ukraine and the disruption of global supply chains following COVID-19 closures in China. The International Monetary Fund (IMF) expects consumer prices to rise to record levels in emerging and developing economies, reaching 10% in 2022 before dropping slightly to around 8.1% in 2023. Although the gross domestic product (GDP) exceeded $100 trillion for the first time in 2022, growth is threatened to come to a halt according to the Centre for Economics and Business Research (CEBR) in Britain. Also, raising interest rates will increase the burden of new and existing loans, lead to a decline in overall demand and investment, and affect productive sectors and the labor market. It is expected that households and businesses around the world will face strong economic difficulties due to rising commodity prices, especially food and energy, and with continued central bank interest rate hikes to curb inflation, as well as supply chain crises and rising energy and food prices due to the war in Ukraine. In this context, statistics from the IMF show that Arab countries in the Middle East, Asia, sub-Saharan Africa, and Latin America are suffering from higher inflation rates than other countries.
In light of these circumstances, the issue of debt reemerges, as the IMF warns of the worsening global debt, which has exceeded 303 trillion dollars, or the equivalent of 350% of the global GDP. This will result in more cases of default in poor countries, with Sri Lanka and Lebanon serving as examples of this deficit.
According to World Bank data, the external debts of low- and middle-income developing countries exceeded 9.2 trillion dollars by the end of 2021, which is more than twice its value a decade ago.
Global Trade and Oil
The decline in global economic growth means that global trade is likely to decline, which will affect foreign investment and thus emerging economies. This is not to mention the possibility of trade wars between industrialized countries and their repercussions on emerging economies. Regarding the impact of the recession on the economies of countries, it is related to the degree of openness of these economies to the global economy. The more open they are, the more vulnerable they are to the consequences of the economic crisis. Moreover, countries that rely on oil exports in their economies are more vulnerable to the effects of the economic crisis, especially when it comes to oil prices.
After oil prices witnessed a significant increase due to the ongoing war in Ukraine, reaching its highest rate in 2022, which is around $100 per barrel, it is expected to decrease during 2023 to below $100 and is expected to decrease further if the economic recession continues, reaching below $70 per barrel by 2025. In general, oil-producing countries remain better off than other countries during the recession period due to the oil revenues that enable them to implement programs to support various sectors to counter the effects of the recession.
Arab Countries' Economies
While the major economies of the world are experiencing a slowdown in growth, including China, the European Union, and the United States, some unexpected Arab countries are achieving a breakthrough in economic growth. Comparing economic growth data for the Arab region in 2022 and 2023 reveals significant disparities in growth expectations between the two years, with clear variations among countries.
In 2022, several Arab countries, especially those in the Gulf Cooperation Council, Egypt, and Iraq, experienced relatively high growth, likely due to the post-COVID-19 recovery period. However, in 2023, significant changes are expected due to recent developments, as previously discussed.
Some countries, such as the Gulf Cooperation Council countries, especially Kuwait and Saudi Arabia, are expected to experience a recession. On the other hand, other countries will experience growth at different rates, particularly Libya, which is expected to lead Arab countries in achieving an unexpected breakthrough in growth, with a growth rate of approximately 18%. Djibouti and Mauritania will follow with growth rates of around 5%, followed by Egypt, the United Arab Emirates, and Iraq (Figure 2).
Unemployment is considered one of the main challenges facing Arab economies. According to World Bank data, there is significant variation in unemployment rates in Arab countries compared to major world economies. According to the ESCWA report, unemployment rates among the Arab population are the highest in the world, with Palestine and Jordan recording the highest unemployment rates in 2021 at around 26% and 24% respectively, followed by Sudan at 21%. According to the findings of several international economic reports indicate, the current economic situation in non-oil Arab countries is very poor today and does not seem to improve in the future unless effective national policies and favorable international conditions are available. On the other hand, it is expected that Egypt, Bahrain, and Kuwait will record much lower rates of 6%, 4%, and 1%, respectively (Figure 2).
Source: International Monetary Fund data.
It is expected that the unemployment rate in the European Union will reach around 7%, with Greece and Spain recording relatively high rates of 14% each, while it will reach around 10% in Italy and around 7% in France, Belgium, and Sweden. In the United Kingdom, it is expected to reach around 5%. On the other hand, both the United States and Canada are expected to record rates of 4% and 7% respectively, while this rate will reach around 3% in both Germany and Switzerland (Figure 4).
Despite the pessimistic economic forecasts, the economies of the Gulf Cooperation Council (GCC) countries have continuously grown over the past two decades, achieving significant leaps in GDP at current prices for all GCC countries combined from less than $400 billion in 2000 to more than $2 trillion in 2022, making the GCC economies among the world's top 10 largest economies. This significant achievement is driven by ambitious economic recovery plans, such as Saudi Arabia's Vision 2030 mega-projects, Dubai's Expo 2020, Qatar's investments related to the World Cup, as well as economic diversification programs.
Source: International Monetary Fund data.
The Impact of Recession on Daily Life
During recession the important question remains about the impact on daily life. Climate shocks, regional conflicts, and the spread of pandemics have disrupted food production and distribution, as well as an increase in the cost of food. Layoffs are likely to be higher and more widespread, and employers may hold back on hiring, leading to a small to medium increase in unemployment rates. However, not everyone will be equally at risk. People vary in their exposure to the impacts of a recession based on their specialties and experience. Those with high demand for their specialties - whether they are front-line employees, IT engineers, or top-level executives - are likely to secure a job or keep their current positions and even receive salary increases and bonuses.
Source: International Monetary Fund data.
Summary
Reports and various sources indicate that major economies in the world, including China, the European Union, and the United States, will experience a slowdown in growth as a result of the blows that the global economy has received over the past two years, starting with the lockdowns due to the coronavirus pandemic, passing through the Russian-Ukrainian war, and currently, the likelihood of the global economy drifting towards recession due to inflation and interest rate hikes. The World Bank has warned of this recession amidst rising inflation rates and interest rates, declining investment, and the ongoing war in Ukraine. The International Monetary Fund expects economic growth to decline to 2.7% in 2023 compared to 3.2% in 2022, which is a global slowdown that could cost the world over $17 trillion in lost productivity.
Accordingly, households and companies around the world are expected to face strong economic difficulties. There are also expectations of a worsening of global debt, which has surpassed $303 trillion, leading to more cases of defaults in poor countries.
Regarding oil, after oil prices experienced a significant increase due to the ongoing war in Ukraine, it is expected to decrease to below 100 during 2023. Generally, oil-producing countries remain in a better position than other countries during the recession due to high oil revenues.
On the other hand, Arab economies have shown variation in growth rates. While some Arab countries will experience a recession after the post-COVID-19 boom, such as Gulf Cooperation Council countries, especially Kuwait and Saudi Arabia, there are Arab countries that will achieve significant growth, such as Djibouti, Egypt, Iraq, and Mauritania, with Libya expected to achieve a breakthrough in economic growth of up to 18%. In any case, despite the pessimistic economic expectations, Gulf Cooperation Council economies have grown continuously over the past two decades and achieved significant leaps, surpassing the trillion-dollar GDP threshold in 2022. Finally, in view of the pessimist economic growth expectations, there is an urgent need for economic programs to tackle the negative effects of the recession and mitigate its impact on poor households and small and medium enterprises.
Recommendations to confront the recession
The role of governments and policy makers is crucial in facing difficult economic times. The measures taken by the government will depend on the specific causes and characteristics of the recession, but the goal of these measures is to stabilize the economy, support individuals and businesses, and promote economic growth. Governments can play a role in mitigating the effects of a recession through a number of economic policies, including:
- Fiscal policy: Governments can use fiscal policy, such as increasing government spending or tax cuts, to stimulate demand and boost economic activity. Fiscal policy should target protecting the most vulnerable groups through targeted and temporary transfers, investing in enhancing productivity, and investing in human capital, digital transformation, green energy, and diversifying supply chains.
- Monetary policy: Central banks can use monetary policy, such as lowering interest rates, to make borrowing cheaper and stimulate economic activity (At a time when the economy is suffering from inflation, it will be difficult to use this policy).
- Infrastructure investment: Governments can invest in infrastructure projects, such as roads, bridges, and public transportation systems, to create job opportunities and stimulate economic activity.
- International cooperation: Governments can work together through international organizations to coordinate efforts and provide support during a recession, and to promote international trade to increase exports and stimulate economic activity.
For individuals and companies, here are some possible strategies to cope with a recession:
1- Cost-cutting: Review expenses and identify areas where spending can be reduced, especially non-essential expenses, and renegotiate contracts.
2- Increasing savings: Establish an emergency fund to help cope with financial difficulties.
3- Diversifying investments: Consider a diversified portfolio that includes both stocks and bonds to reduce overall risks.
4- Debt management: Prioritize paying off high-interest debts and consider repayment methods or renegotiating them to reduce monthly payments.
5- Embracing technology: Embrace new technologies and innovations to improve efficiency, productivity, and increase revenue.
6- Focusing on skill-building: Invest in personal and professional development to increase marketable skills and competitiveness.
7- Strengthening relationships: Strengthen relationships with customers, suppliers, and other stakeholders to increase flexibility and support during difficult times.
8- Seeking government support: Look into government programs, tax exemptions, or other financial incentives to help manage the recession period.
[1]International Monetary Fund: https://www.imf.org/ar/Blogs/Articles/2022/09/30/global-food-crisis-demands-support-for-people-open-trade-bigger-local-harvests.
