Josh Lipsky

In the past four global recessions, the US and Germany took the lead in driving down the world’s economy. But this time will be different:

For the first time, it’s China’s pronounced slowdown which could be the single largest factor in creating a global recession.

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  1. shinichi Post author

    A new type of global recession

    by Josh Lipsky

    https://www.atlanticcouncil.org/blogs/econographics/a-new-type-of-global-recession/

    As the heavyweights of global finance gather in the Swiss Alps for the first-ever summer session of Davos, they face the darkest economic outlook in years.

    The stark reality is that the global economy may be about to enter a recession. The problem is no one agrees precisely what that means.

    Recessions are easily defined in a domestic economy: two consecutive quarters of negative GDP growth. But a global recession is harder to gauge.

    Is it 3% GDP growth? That would be relatively rosy. Is it negative GDP growth for the entire world? Unlikely — we haven’t seen that since World War II. So sub-2% growth seems to be a fair way to think about a very bad year for the global economy.

    If you apply that standard, the global economy has experienced sub-2% GDP growth only four times in the past four decades — on average once a decade.

    In the past four global recessions, the US and Germany took the lead in driving down the world’s economy. But this time will be different:

    For the first time, it’s China’s pronounced slowdown which could be the single largest factor in creating a global recession.

    This outcome isn’t guaranteed. China could ease its lockdown policy, the US Federal Reserve could engineer a soft landing, Eurozone energy shocks could abate quickly. But the data above is a reminder that the global economy has fundamentally changed.

    The model above is based on a more negative shock than is currently forecasted — but it’s easy to see how China’s growth could slow to 3% given their distressed property sector and commitment to a zero-covid policy.

    Compare this situation to the last global economic crisis. In 2008 and 2009, China continued to grow at a rapid pace. Indeed, Beijing spent the early part of the last decade investing in infrastructure while western economies struggled to emerge from recession.

    This growth shift should frame the conversation throughout the week at Davos and give leaders of finance pause. Instead of simply finding a return to the pre-Covid era, the goal should be to design policies that make economies more resilient to similar shocks. No one region or country can be relied upon to sustain the global economy. China will now confront similar growth challenges to its large economy peers.

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