Most Developed Countries Will Enter A Recession In 2023: A challenging year for the world economy is expected to affect certain nations more severely than others.
Many bankers, economists, and business executives have warned that the year 2023 will bring a global economic slowdown that will cause many nations to enter a recession. According to IMF chief Kristalina Georgieva, who foresees a “difficult year” for the world, up to one-third of the global economy may experience a recession this year.
As wealthy nations won’t be able to avoid economic slowdowns, Georgieva predicted that simultaneous contractions in three major economies—the U.S., the EU, and China—will be the leading causes of a worldwide recession.
U.K. In Crisis
However, certain affluent countries are expected to perform far worse than others in 2023 due to the pandemic’s lasting impacts and the war in Ukraine.
According to a Financial Times study published on Monday, over four-fifths of economists predict that the U.K. would be hit by far more prolonged recession than its peers, making it the country in the G7 with a “deeper and more extended recession” than any other country.
A “clear majority” of the 101 U.K.-based economists questioned by the Financial Times said that the U.K. is in for a considerably more severe economic recession than other G7 nations, one that will take longer to recover from.
The UK will face one of the worst recessions and weakest recoveries in the G7 2023, as households pay a heavy price for the gov’s policy failings, economists say.
“The 2023 recession will feel much worse than the economic impact of the pandemic,”https://t.co/2io896axWJ
— Nathan Benaich (@nathanbenaich) January 3, 2023
According to economists, the main causes of the U.K.’s rather bleak prospects are chronically rising inflation, a dwindling workforce, deteriorating trade relations with the EU, and large exposure to the energy crisis brought on by the conflict in Ukraine.
Ricardo Reis, a polled economist and professor at the London School of Economics, said in the survey that “the U.K. suffers from an energy shock as bad as Europe’s, an inflation problem…as bad as the U.S., and a unique problem of lack of labor supply from the combination of Brexit and the NHS crisis.”
A Challenging Year Lies Ahead
According to the economists surveyed, inflation is expected to start to decline in 2024, and the U.K. economy will likely struggle for the rest of this year.
According to the survey, consumers will likely bear the brunt of the expense as inflation soars and borrowing costs rise following the Bank of England’s hike in interest rates. Economists used adjectives like “awful” and “miserable” to describe the consumer outlook for the upcoming year.
The UK’s annual inflation rate was 10.7% last month, and like many other nations, the U.K. central bank used a series of interest rate increases last year to reduce prices.
At its final meeting of 2022 in December, the Bank of England raised interest rates again, signaling that it was prepared to “act aggressively” with additional increases if inflation continued into 2023.
According to economists surveyed by the Financial Times, the effects of the Ukraine war might keep inflation uncomfortably high this year in the form of rising energy costs.
Vladimir Putin significantly restricted Europe’s access to Russian natural gas as retaliation for Western sanctions, which caused energy prices to rise last year.
Given that the United Kingdom depends on natural gas for 84 percent of its heating needs and 40 percent of its electricity generation, in contrast to the EU, and because it has the minimal gas storage capacity to fall back on during periods of high energy demand, the supply squeeze has sparked an energy crisis on its shores.
The country’s dwindling labor force, which over the past few years has seen record numbers of workers leave the workforce, mainly owing to long-term ailments and mental health concerns, has exacerbated the country’s inflation problem.
According to the Office for National Statistics, between January 2019 and November 2022, 500,000 more workers withdrew from the labor force due to illness.
Public services have also suffered in the UK due to the declining labor force. Due to illness and salary conflicts, the number of individuals working in social care decreased by 50,000 last year, the first decrease in ten years.
Although the U.K. economy is predicted to enter a recession this year due to high prices and a declining workforce, this is not the first time the nation’s economy has lagged behind its G7 counterparts.
The U.K.’s economic decline was the worst among the G7 countries in the early stages of the pandemic in 2020, when much of the world experienced a severe but brief recession. The U.K.’s delayed decision to enact lockdowns, which was a factor in the highest number of excess deaths from COVID in Europe, was blamed by economists for the abrupt downturn.
The U.K.’s economic recovery from the pandemic has been sluggish compared to other developed countries.
According to official figures from the ONS released in September, the U.K. was the only developed country in the G7 last year with an economy smaller than before the pandemic. This is because high inflation and interest rates had a much more significant negative impact on economic growth than in other developed countries.
The findings of the FT study regarding the severity of the upcoming recession in the U.K. complement a similar prediction made by the OECD. This intergovernmental group promoted global trade and economic growth last year.
According to the organization’s most recent economic forecast, issued in November, the U.K. is likely to see the most remarkable economic drop among wealthy countries due to the Ukraine war and the energy crisis.