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Why a global recession is inevitable in 2023 – The Economist – 18.12.22

The world is reeling from shocks in geopolitics, energy and economics by Zanny Minton Beddoes: Editor-in-chief.

THE EDITORS of the Collins English Dictionary have declared “permacrisis” to be their word of the year for 2022. Defined as an “an extended period of instability and insecurity”, it is an ugly portmanteau that accurately encapsulates today’s world as 2023 dawns. Vladimir Putin’s invasion of Ukraine has led to the biggest land war in Europe since 1945, the most serious risk of nuclear escalation since the Cuban missile crisis and the most far-reaching sanctions regime since the 1930s.

Soaring food and energy costs have fuelled the highest rates of inflation since the 1980s in many countries and the biggest macroeconomic challenge in the modern era of central banking. Assumptions that have held for decades—that borders should be inviolable, nuclear weapons won’t be used, inflation will be low and the lights in rich countries will stay on—have all been simultaneously shaken.

Three shocks have combined to cause this turmoil. The biggest is geopolitical. The American-led post-war world order is being challenged, most obviously by Mr Putin, and most profoundly by the persistently worsening relationship between America and Xi Jinping’s China. The resolve with which America and European countries responded to Russia’s aggression may have revitalised the idea of “the West”, particularly the transatlantic alliance.

But it has widened the gap between the West and the rest. The majority of people in the world live in countries that do not support Western sanctions on Russia. Mr Xi openly rejects the universal values upon which the Western order is based. Economic decoupling between the world’s two biggest economies is becoming a reality; a Chinese invasion of Taiwan is no longer implausible. Cracks are also appearing in other longstanding geopolitical certainties, such as the alliance of convenience between America and Saudi Arabia.

Most people in the world live in countries that do not support Western sanctions on Russia

The war in Ukraine, in turn, has led to both the biggest commodity shock since the 1970s and a warp-speed reshaping of the global energy system. Ukraine’s importance as an agricultural exporter meant the war threatened mass global hunger, until a means was found to open the port of Odessa. Even now, for many countries the most immediate consequence of a far-off conflict has been dearer food and fertiliser at home.

Mr Putin’s willingness to weaponise his gas exports exposed Europe’s chronic dependence on Russian hydrocarbons, rendered swathes of its energy-intensive industry unviable overnight, forced governments to spend billions cushioning consumers and prompted a mad scramble for new sources of supply.

And all this in a year during which the consequences of climate change, from floods in Pakistan to heatwaves in Europe, became ever more violently visible. With soaring energy costs prompting even the greenest European politicians to turn mothballed coal plants back on again, stark trade-offs have appeared between ensuring energy supplies are affordable, secure and environmentally sustainable.

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Why a global recession is inevitable in 2023 – The Economist – 18.12.22
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This article appeared in the Leaders section of the print edition of The World Ahead 2023 under the headline “Three shocks that shook the world”

Credit: Seb Agresti

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