The world’s largest economies are either in a recession, or they seem to be getting awfully close to one.
For weeks, the World Trade Organization and the World Bank have warned that a global recession is now likelier than ever. Economic growth forecasts have soured and rising inflation is forcing central banks worldwide to tighten financial conditions and slow down their economies, threatening to tip many countries into a recession.
But the argument about whether or not a global economic contraction is in the cards may already be dated, according to Jonathan Garner, chief Asia and emerging market strategist at Morgan Stanley. He argues that recession chances are already assured in China, Europe, and the U.S., and the remaining questions are about when economic contractions will start, and how bad they will be.
“This debate to some extent is over. We are in some kind of a global recession as of the third quarter,” Garner, told Bloomberg on Sunday.
“The question is, how do we get out of it through the course of next year?”
China is already in a recession
A global recession will hit economies at different times and with different consequences.
China, for instance, has likely been in a recession for “some considerable time,” Garner said, citing the country’s rising unemployment numbers. While a recession in most Western countries is likely to be triggered by how governments have raised interest rates to respond to soaring inflation, China’s annual inflation rate has been relatively low at 2.5% last month.
But strict COVID-19 policies and frequent lockdowns this year in the country’s manufacturing hubs have led to a significant drop in the country’s economic outlook for next year. The World Bank last month projected Chinese GDP growth to slow to 2.8% this year, down from 8.1% in 2021. The organization expects even slower growth next year, largely due to ongoing efforts to contain COVID-19.
For a country that has posted annual GDP growth over 7% for most of the past 10 years, such a slowdown could make China “feel like it is in recession,” economist and president of Queen’s College, Cambridge Mohamed El-Erian said in September.
The souring view on the economy is already hitting the labor market, a clear recessionary signal according to Garner. Youth unemployment in China is now at nearly 20%, and sentiments towards job prospects has declined to its lowest level since 2010, according to a survey released last week by China’s central bank, which found that fewer than 10% of Chinese workers were finding it easy to get a job in the current market.
Different recession types
While China may already be in a recession, the picture in the West is cloudier.
A recession probably hasn’t started yet in the U.S., Garner said, but across the ocean, the European Union and its 27 member countries are collectively “going into a recession.”
In June of this year, Morgan Stanley analysts forecasted a recession to hit the eurozone by the end of 2022, while other banks including JP Morgan have made similar predictions. Analysts blame Europe’s economic forecast on the continent’s mounting energy crisis, which has largely been caused by the Russian invasion of Ukraine and its effects on global energy supply.
Limited energy supply and high prices are already causing industrial and economic activity to slow down, which Goldman Sachs analysts warned last month could lead to a wave of unemployment and a potentially long recession sweeping the continent.
A European recession may have already begun months ago, analysts from economic consultancy firm Pantheon Macroeconomics said in August. Even in the U.K., a “moderate” recession may have started during the second quarter of this year, S&P Global Ratings predicted last month.
In the U.S. meanwhile a full-blown recession has become less of a guarantee and any economic contraction might be relatively limited to certain sectors, Garner said.
The main arbiter of when recessions begin and end in the U.S. is the private National Bureau of Economic Research (NBER). The NBER has yet to officially call a U.S. recession, although one may have already begun. The common rule of thumb in determining when a recession starts in the U.S. is if GDP declines for two consecutive economic quarters, something that happened in July.
“Some parts of the U.S. economy have moved into recession,” he said, emphasizing the dangers the U.S. tech industry faces.
Tech companies were among the first and worst hit when the stock market took a plunge earlier this year, and have barely been able to recover since. And while the U.S. labor market has so far remained relatively robust despite recession fears, tech companies including Netflix and Snapchat parent Snap have already been forced into layoffs, with many more companies freezing hiring and reducing expenses.
Sign up for the Fortune Features email list so you don’t miss our biggest features, exclusive interviews, and investigations.