Are the markets about to recover, or should we still fear the recession?

Recession – a scary proposition for the world economy. During recessions economic growth rate slows, there are increasing unemployment rates and life becomes difficult in general. In order to better prepare for the recession, we will need to analyze the likelihood of one in 2023. So, let’s start.

How to predict a recession

There are some relevant signs before every recession, increasing the chances of correctly predicting the future recession. But there is no direct way to exactly tell when the recession is going to happen. There are several main factors that contribute to the recession. During the recession, it is critical to stay financially stable and learn new skills. Trading on financial markets can help increase profits, thereby education in this sector is very beneficial. You can learn to trade with LearnFX with abundant educational materials.  Let’s first look at important precondition factors and then assist it with statistics data to clearly see the picture.

Yield curve inversion

Probably the most powerful metric in recession prediction is when the yield curve inverts, meaning the short-term interest rates are higher than long-term interest rates. What does this mean? The confidence is weak for long-term debt yields, and shorter-term bonds are more attractive to investors. The inverted yield curve is not good, it shows the confidence for longer-term interest rates is weaker and investors prefer short-term bonds. This can be a sign of impending recession. The situation is as follows for us bond yields. On January 18, 2023, the interest rate on a 10-year U.S. government bond was 3.37%, lower than the interest rate on a 2-year bond at 4.06%. This is obviously an inverted yield curve, and it suggests that people think long-term interest rates will go down in the future. This makes it a bit riskier to hold onto the long-term debt, since nobody knows what’s going to happen in the financial markets down the road. The US is a major indicator of world economic well-being as its USD is a world reserve currency, therefore any substantial volatility is going to greatly affect all other economies.

Gross Domestic Product (GDP) Growth declines

Another obvious tendency of an upcoming recession is when GDP growth begins to slow. GDP is a very important metric for the economy of the country, and it is not a good sign when it slows down as it means the whole economy is on a decline, showing there is a possibility of a recession on the horizon. As global growth is expected to slow to 3.8 percent in 2023 according to the IMF, this is bad news for 2023 world economies and predicts a recession.

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Unemployment rate

If the unemployment rate begins to rise, it can be a sign that the economy is slowing down, and you already have an idea of what it means when the economy starts to slow down. In the USA example, the tech giants like Amazon, Facebook, and Google are firing thousands of employees, but unemployment still remains somewhat healthy as there are many other sectors that are hiring despite rising interest rates. We can see this on the monthly unemployment charts, where the rate is declining after the 2021 pandemic.

So, the unemployment rate is not alarming for the USA, and it doesn’t show signs of a recession.

Consumer confidence

The expectations index is down from 83.4 to 77.8 which is based on the short-term outlook for income, business, and labor market conditions. Overall confidence is also weak for Jan. 2023. Although many numbers are positive, consumer confidence is weak in the USA. This metric is showing that a recession may happen if consumer confidence continues to be low in the coming months.

Other global factors

The aftermath of the pandemic and global political and economic crisis can radically accelerate the coming of recession, leaving no room for the governments to react. The Russian invasion of Ukraine which led to a major war in Europe is affecting the global economic situation heavily. As sanctions are hitting the Russian aggression to slow the terrorist country down, Europe faces an energy crisis. Inflation is also high in the USA and the Fed is increasing interest rates to stabilize the dollar. The global political situation is unstable and extremely tense as the already established world order is about to change and this is not going to affect economies positively. So, this metric also predicts a recession.

Conclusion

We have discussed the possibility of a recession in 2023 and highlighted the key factors that contribute to predicting the recession. From our findings the yield curve is inverted for US bonds, world GDP is slowing down, consumer confidence is weak in the USA, the major world powers are about to shift and the global political and economic scene is tense. All these factors are looking bleak for 2023 and the unemployment rate alone won’t be enough to stop the recession. So, we predict that in 2023 the recession is highly probable and advise all people to learn more about finance and get prepared for economic earthquakes. Global political and European energy crisis is going to affect everybody’s life negatively, and it will be difficult for governments to act in time with precise actions to stabilize the economy and prevent a recession.