Macroscope | Another global crash on the horizon as the world’s economic engines sputter

The rapidly deteriorating state of the global economy suggests that a hard landing in the form of a recession or crash is all but certain

China and other emerging economies might have to carry the load of sustaining growth, but government budgets are stretched fighting the pandemic and inflation

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Women photograph a plane landing at an airport in Washington in April 2020. Photo: Reuters

Published: 3:15pm, 31 Jul 2022Updated: 3:17pm, 31 Jul 2022

“Mayday, mayday. Three engines are failing and the fourth is misfiring. We are losing speed and altitude fast and heading for a hard landing.” An SOS like this might suggest an aircraft about to plunge to its doom, but, in fact, it describes the plight of a global economy in severe distress.

While not using those exact words, this is the gist of what the International Monetary Fund (IMF) says in its latest World Economic Outlook about the rapidly deteriorating state of the global economy. The hard landing is all but certain to be an economic recession or even a crash.

The IMF has again downgraded global growth forecasts. Its baseline projection is for growth to slow from the 6.1 per cent seen last year to just 3.2 per cent in 2022 and then fall further next year to 2.9 per cent. The outlook, as the IMF says, is not just cloudy but is downright “gloomy”.

Among the world’s three largest economic engines, those of the United States and the euro zone are flaming out while China’s has lost thrust. Meanwhile, Japan’s is delivering little power. Yet, the world is reliant upon China and other emerging economies to keep the distressed aircraft flying.

Do those still-functioning engines have the power to do so? As the IMF says, “estimates of the probability of recession have increased,” so that is hardly a promising context. We will come back to this point, but first a few observations about the current situation.

The Asian financial crisis in 1997 was an event within Asia. Even so, a major contributing factor was the pressure Asian countries had come under to open their economies to foreign capital flows, thus rendering them vulnerable to external shocks.

.css-1m2rp1p{color:#34b8b5;}Macroscope | Another global crash on the horizon as the world’s economic engines sputter

Macroscope | Another global crash on the horizon as the world’s economic engines sputter