What awaits the global economy in 2023?

We are leaving behind a very turbulent year in terms of the global economy. Many important developments, especially the Russia-Ukraine War that started in the first quarter of this year, had a direct and indirect impact on the global economy. However, as you know, the change in the calendar year does not leave behind the problems of the previous year. In other words, we carry numerous problems and risks with us from 2022 to 2023.

Recession is one of the most talked about topics in the global economy for 2023. As a result of the tightening monetary and fiscal policies implemented due to high inflation, expectations for a contraction in major economies are becoming more evident.

Technically, we call a recession when a country's economy shrinks for at least two quarters in a row. Of course, how long this shrinkage will last and its size are extremely important. On the other hand, as Fed Chairman Powell said for the U.S. economy, this contraction is needed to reduce high inflation. In fact, Powell said that this contraction will also cause a certain degree of unemployment, saying that "there is no painless way to do this". However, we see that the Fed has slowed down the rate of interest rate hikes for the "moderate recession" scenario in order not to cause a deep problem.

The year 2022 was also very difficult for the central banks. It looks like that will be the case in 2023. Because, on the one hand, central banks have to fight high inflation, on the other hand, economic administrations have to implement supportive policies due to the post-pandemic and war period. This situation brings with it a policy conflict.

It is no secret that this policy conflict is making the work of central banks more difficult. In this regard, major central banks, especially the Fed and the ECB, slowed the rate of interest rate increases in their last meeting. However, the matter is not that simple. The slowdown in interest rate increases delays inflation to reach the targeted level. Aware of this, central banks declare that they will set policy rates higher than the previously predicted level. Of course, how long they will have to keep the interest rates at the high level they have raised is another matter of discussion. The inevitable result of such a process is that it will take longer than anticipated for economies to regain their potential growth.

There is no need to even discuss the human dimension of the issue. It is an obvious fact that war is a crime against humanity. Meanwhile, the negative effects of the war on the global economy are becoming more evident day by day. In this respect, the answer to the question of when the war will end is very important. We wish the war to end as soon as possible. But the facts show that this is not possible in a very short time. In fact, Europe has not seen the worst of it yet. It should be noted that the main difficult period for Europe will be the winter of 2023.

We follow the Bloomberg Commodity Spot Index data to track movements in global commodity prices. According to the data in question, a significant decline has started in global commodity prices. However, the numbers are well above the period before the war and the pandemic. According to estimates, it will never return to its former level for a long time. Although prices have declined since the beginning of June, they are still well above the peaks of the 2008 Global Financial Crisis and the 2010 European debt crisis. It is far, far away from the pre-war and pandemic era.