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Global Economy Headed Into Recession

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The global economic outlook is deteriorating due to inflation-fighting efforts by central banks, the war between Russia and Ukraine, and China’s prioritization of political control over economic growth. A global recession is likely, with at least slower economic growth virtually certain.

People who have followed my work for years often say that I’m an optimist, and usually I am. Right now, though, the weight of evidence points to a slowing world economy.

Just as the Federal Reserve has hiked interest rates in the U.S., many central banks around the world are tightening monetary policy. The Council on Foreign Relations publishes a Global Monetary Policy Tracker which, as of August 2022, shows tightening among most of the 54 central banks that they track.

Specifically, the European Central Bank has increased its policy rate and signaled more increases are likely in the coming months. So have the Bank of England and the Bank of Canada. Other tightening countries include Australia, India, and many in Latin America. The only major countries easing monetary policy are Russia and China. The global tightening is likely to slow economic growth around the world and lead to recession in some countries.

The tightening is not a mistake, but in most cases it’s coming too late, which means more economic damage than it had begun earliers.

Europe has the additional challenge of tight energy. Their dependence on Russian energy has increased in the past decade from 25% of total gas demand in 2009 to 32% in 2021.

In recent weeks the European Union announced a plan to cap the price paid for Russian natural gas, and President Putin threatened to further restrict supplies of energy to Europe. Rationing schemes are under discussion, electricity prices have soared, and energy-intensive industries are shutting down some of their European operations. The likely result, barring some quick resolution, will be a full-blown European recession this winter.

China’s economy is weakening, as I’ve detailed recently. President Xi Jinping has prioritized political and ideological control over economic growth, plus pursued a zero-Covid policy that has shut down portions of the economy. Serious western analysts are discussing the possibility of a Chinese invasion of Taiwan, a blockade, or at least much more pressure on Taiwan to accept mainland laws and a puppet leader. The odds of actual shooting are probably low, but the consequences are very high, justifying serious contingency planning.


The Russian and Chinese issues are leading companies around the world to shorten and simplify their supply chains, reshoring in their home countries when possible. This will be costly, effectively reducing global productive capacity. Change will come slowly, and it’s necessary given international tensions, but the changes will reduce economic production around the world..


Commodity prices are usually a good gauge of current sentiments about future global economic growth. As this article is written, oil prices have dropped recently despite the problems with Russian energy deliveries and a drop in OPEC production.


Copper prices have also fallen in recent weeks. Copper is another good indicator of expectations about economic growth.

In the positive side of the ledger, Canada and Mexico, both large export markets for the United States, are less sensitive to these global economic headwinds.

How bad will the global slump be? Probably not as calamitous as the 2008-09 financial crisis, but certainly worse than the minor cycles we’ve seen. And if shooting breaks out over Taiwan, then economic disaster will befall the world for a few years.

Business contingency planning for a global slump should recognize the interest sensitive portion of the risk. Monetary tightening tends to cut construction, first residential and later non-residential, as well as business capital spending and big-ticket consumer spending. Companies selling into those industries will be most vulnerable.

Companies trading with Europe should be worried. Primary concerns would be sales of goods and services to energy-intensive businesses in Europe, as they may have to suspend operations so that homes can be heated in the winter. Discretionary consumer spending will also be reduced. Businesses reliant on materials from European manufacturers should consider possible supply chain problems resulting from the energy crunch.

Businesses selling to China can expect lower growth, perhaps even a decline in some sectors such as building materials. Whereas the monetary policy impacts will be sharp but relatively brief, China’s economic slump will be gradual and long-term, at least so long as Xi Jinping’s policies are in effect.

Organizations doing business with China, Taiwan and maybe even their close neighbors must do contingency planning for conflict. No one particular scenario seems to be hugely more likely than the others, so multiple possibilities should be considered.

Finally, every major change brings opportunities for growth for a few businesses that are creative, far-sighted and bold. Being open to growth opportunities in changing times will pay dividends in the eventual upturn.

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