Global Recession in 2023, What, Why and How?

Is a global crisis approaching us in 2023 or is this another fallacy to create unrest within worldwide economies? The possibility of a global recession is at large and for understandable reasons. Let’s delve a little deeper. 

Why Does Recession Occur? 

A recession is simply defined as the prolonged decline of real GDP of an economy, more specifically for more than 2 successive quarters. This is also often times accompanied with a rise in unemployment and consistent inflation. 

Other causes of recession or indicators of recession can be a slowdown in consumer spending and investments, decrease in manufacturing activity, loss in personal income due to unemployment, inverted yield curves, stock market crash, wage-price fluctuations, and asset bubble bursts. 

Economies work in a chain. Members of the chain mainly include sellers, buyers, lenders, workers, and employers. Take inflation for example, when there is consistent inflation in an economy it starts with the seller charging a higher price for raw materials from the buyer which in turn increases the price of the good itself. From then it is a downward spiral. 

When talking about recession, it seems almost incomplete without mentioning the Great Recession of 2008-2009. 

The Great Recession: Will It Happen Again in 2023? 

The Great Recession was triggered by a housing bubble which caused the real estate and housing market to crash, causing a ripple effect on several other branches of the economy. This didn’t just affect the United States but impacted all countries with large account deficits, rapid credit growth, and much more.  

Not only that but global trade nearly collapsed, declining by 15% between 2008 and 2009 and unemployment increased by 3% between 2007 and 2010. A grand total of around 30 million jobs were lost. So, what can be speculated very clearly from those events was that our global economy functions as a whole rather than as separate entities. While the possibility of the Great Recession happening again is not likely, there will be damaging effects on several economies if global recession occurs again. 

The Invisible Link  

When one economy is damaged, it directly or indirectly causes unrest in other economies, and this is also the case for the effects of recession. Recession in major economies will undoubtedly have a more prominent effect on global economies as they play important roles in the demand and supply chains. 

Projections for 2023 are daunting. The IMF has once again readjusted their global forecast for 2023 and have now stated that global growth is expected to slump to 2.7% in the upcoming year, with a 25% probability it could fall below 2%. The inflation rate is expected to have a slight decrease from 8.8% in 2022 to 6.5% in 2023. The prospects outlined by the IMF are the weakest since 2001. 

Global Effects 

Studies have shown that the US and Europe are headed toward recession for an amalgamation of factors but most prominently the fuel shortage which is mainly occurring as a result of the ongoing political issue. The rise in prices of fuel and natural gas have caused production costs to skyrocket and thus increase manufacturing costs. 

Europe may be heading into deep recession. Most, if not all, countries within the EU will face the backlash of this rise in natural gas prices. However, among all the nations within Europe, Germany is said to face significant problems as they are still heavily reliant on Russia for their gas. Italy is also likely to have a taste of the global recession. On the contrary, some experts are predicting that the US may be able to skirt this recession or may face mild effects at most if they can battle the energy crisis.

Building Strategies to Cope with The Global Crisis 2023

These are daunting times for all of us, regardless of which nation you reside in or what sort of work you are occupied in. The effects of global recession in 2023 will have a shattering effect on numerous economies. 

Over the past week, giant tech companies have laid off over 20,000 employees. These job cuts and hiring freezes have been a common scenario in the tech industry for the past few months. Some of  these layoffs are result of businesses exploring and investing in other lucrative sectors within the industry. 

Still, some developing nations are projected to see some positive changes in their economies during these trying times. Thus, there are business opportunities during a recession. 

Such is the case for the technology industry. One of the few industries, which is predicted to grow among all this chaos. Reports have shown that the worldwide spending on the IT and tech field is likely to increase at a steady 5.1% in the upcoming year, signaling that companies are employing technology to brace themselves for the upcoming global recession. 

A report by Gartner stated that the total worldwide software spending rate is said to grow from about $790 billion this year to $879 billion in 2023, indicating a 11.3% growth rate. Similarly, spending on IT services is said to increase from $1.25 trillion in 2022 to $1.35 trillion next year, suggesting a 7.9% rate of growth. 

Reports have shown that one of the best investments during this recession will most likely be technology and software resources, but this is also a speculation. The cost-cutting nature of this field has benefits that are experienced in the long run rather than immediately and companies are slowly getting a whiff of this. 

Another popular phenomenon and common practice being developed by companies across the world is outsourcing. As tensions rise in several nations and work processes become unstable, companies are outsourcing their software development work to offshore companies and firms. Interestingly, outsourcing for software development at start-ups is expected to increase by 70% between 2022 and 2023, as per new research from Commit.

Wrapping Up 

This year is coming to a close and it is bringing with it a lot of anticipation and apprehension. Fast, calculative, and strategic decisions need to be made by leaders and business owners if they aim to sail through the 2023 recession storm. 

To avoid being a part of this wave of financial and economic crisis, businesses need to adapt and be agile in their operational methods. They must develop cost-cutting approaches like outsourcing wherever it is applicable.