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Geopolitical Uncertainty
November 12, 2022

What’s the timing outlook for a recession?

“A recession is coming, this is for sure. The timing of the recession is up for debate. Some market participants expect it to occur sometime next year, while many others expect it to come later in 2024 or 2025. CPM Group falls in this latter camp, but always emphasizing that one could occur at any time. Precisely projection the onset, length, and depth of future recessions is a combination of science, art, and experience, with imperfect results. CPM Group has been projecting for some time now that a recession is likely to emerge in 2024 or 2025. CPM Group expects economic growth to slow further in 2023 and a recession to occur in 2024 and last possibly into 2025.

There are various reasons backing this expectation. The obvious one is the tightening of monetary policy to combat inflation, which has risen at a stronger pace than what has been seen in recent decades. Tighter monetary policy will act with a lag on economic growth and play an important role in contributing to the imminent recession.

But monetary policy is not the only factor that is expected to result in causing the recession, with various global political factors possibly playing an equally important role in causing a recession. Russia’s invasion of Ukraine earlier this year has further deteriorated Russia’s relations with the West. There also has been an intensification of the deterioration of relations between China and the United States.

Additionally, changes in economic trends, including declining international trade, constrained capital availability and capital formation capacities in most parts of the world, and government and private fiscal constraints all factor into tipping economies into recession. Shifts in labor, manufacturing, consumption, housing and other components of the overall economy also are critical factors.

One of the outcomes of the deterioration of relations and the breakdown in cooperation between various major economies and governments of the world has been its negative impact on trade. Trade is not only extremely important to both the exporting and importing country, but it also is a major component of global gross domestic product (GDP). Based on World Bank data, at its peak in 2008 global trade accounted for around 60% of global GDP. Trade declined during the Great Recession, but was back to around 60% of global GDP by 2011. Since then, however, it has been in a declining trend, standing at around 52% in 2020. Hostilities between various major economies are expected to continue to weigh on trade in coming years.

The hostilities are also expected to hurt the potential for cooperation between nations in times of crisis, making a bad situation worse. This was seen to some extent at the start of the year when Russia invaded Ukraine and it is likely to repeat when future economic crises hit.

In addition to cross border political tensions, which are expected to negatively impact trade and therefore global economic growth, there also is disunity within the borders of many countries and regions, including the United States, Europe, and the U.K. This will stifle economic growth in these countries and regions with a negative impact for all economic growth.

China has been a very important part of supporting global economic growth over the past several decades, filling in during periods when other nations or regions were faltering economically. China’s distancing from many parts of the world coupled with various political changes that are occurring within its own borders are factors that are expected to further reduce Chinese economic growth in coming years.

In addition to tighter monetary policy and political problems, there are other factors that also are expected to contribute to a global economic recession in coming years, ranging from a decapitalization of public equity markets, where companies have been using their excess funds to buy back their stocks versus investing in capital goods and labor, to increased volatility in global currency markets to name a few. “

*This information is solely an excerpt of a third-party publication and is incomplete. Please subscribe to the referenced publication for the full article. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.

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