Warning!!! Recession in six to nine months – JP Morgan CEO Jamie Dimon; Will the Recession in the US Economy Take the World Down With It?

Warning!!! Recession in six to nine months – JP Morgan CEO Jamie Dimon; Will the Recession in the US Economy Take the World Down With It?

Yes, it is true; almost all the major financial institutions, analysts and the majority of economists the world over are sounding the alarm for the incoming recession that may hit the global markets in a short time, and the latest to join this long line is the United States biggest investment bank – JP Morgan’s CEO Jamie Dimon.

According to a CNBC report on Monday, Chief Executive Jamie Dimon of JPMorgan Chase & Co said that the global economy and the United States are set to dip into a recession by mid-following FY 2023.

His comments have come in just when the United States big banks are set to report their third-quarter earnings. So far this year, the benchmark S&P 500 index has lost about 24%. All three major indices in the US are trading on the bearish side in the markets.

Earlier this year, Dimon asked the investors to brace themselves for a “hurricane” JP Morgan, which missed quarterly Wall Street expectations, had suspended the buyback of shares in July this year.

Predictions of Majority of CEOs

Most of the CEOs of renowned companies are predicting a recession in the coming year. In a new survey done by accounting firm KPMG – more than 8 out of 10 CEOs have recently stated that they are of the opinion that recession may crop in during the coming 12 months.

According to the KPMG survey – Out of the 1,300 CEOs at the world’s largest companies, 73%  said they believe that an economic downturn is on its way and that it will disrupt growth.

Hence, keeping the above in mind, almost  39% of the CEOs have implemented a freeze in hiring policy, while 46% may look to downsize the number of employees during the next six months.

What’s hindering the Global Economy?

In an interview with a business news channel, according to Dimon, the global economy has seen setbacks, and these have cropped up due to rising inflation, massive hikes in the interest rates, the invasion of Ukraine by Russia and the unknown effects of the Federal Reserve’s quantitative easing policy.

What are the US Banks predicting?

Goldman Sachs, too in June, had predicted that the probability of the US economy might fall into recession in the coming FY23 stands at 30%. Increasing these odds, the economists at Morgan Stanley predicted that there might be a highly likely chance of around 35% that the US economy may dip into recession.

Both the World Bank and the International Monetary Fund warned that there is an increasing risk that the global economy may enter recession, citing Russia‘s invasion of Ukraine as the main reason why the inflation has risen to proportions that it has tipped the global economy towards recession.

Global Setbacks

The economy world over was in the doldrums due to the Covid – 91 pandemic, which hampered trade, businesses and thus the economy and the ongoing war in Ukraine. This has resulted in several problems, for example – a rise in severe poverty, displacement of people, loss of precious resources and rising inflation.

According to the World Bank – there has been an 11% increase in the number of people living on just $2.15 per day in 2020, which roughly translates from 648 million to 719 million.

Will the Recession in the United States take the World Down with It?

There is a rising fear in the United States that it may be in recession territory, and the economy is facing a tough time since the price pressure woes continue, and energy prices (oil and gas) have risen higher again.

Earlier this week, The Organization of Petroleum Exporting Countries and its allies – or OPEC+ decided to cut oil output by 2 million barrels of crude per day.

The result was that it pushed costs related to oil and gas and prices for almost everything.

What is worrying the economists in the United States is the fact that to declare a recession in an economy, the barometer for the same is two consecutive quarterly declines in the GDP.

United States GDP contracted by 0.6% last quarter after shrinking by 1.6% between January and March.

More worry for the United States economy is that its trade deficit in August narrowed to its lowest level in more than a year. 

Even the mortgage rates in the United States have more than doubled in the last year and hence have impacted millions of Americans from home ownership.

Factories have resorted to lowered production, and job cuts are on the rise.

According to Richard Kozul-Wright, director of the globalisation division at the United Nations Conference on Trade and Development (UNCTAD), a Recession in the United States has the potential to cause “deep pain” in the developing worlds. If a financial shock is triggered in the US, there is no limit to the downside and the effect it may have on the global economy.

Cryptocurrencies Downward Spiral

Even the cryptocurrencies that have gained immense popularity and witnessed a surge in price have not been spared and have nosedived.

Bitcoin, the world’s top digital coin, has in the past one year shed more than 60% of its value in the past year.

While Ethereum, the world’s second-largest cryptocurrency, has dropped in value by 61% in the past year.

Is India immune to the Recession in the United States?

No, India is not immune to a recession hitting the United States.

If one were to take into account the rising prices of petrol to edible oil, things are already on the boil. The rise in prices has been the sharpest in a decade.

Add to this retail inflation which has, for the most part, remained above 7%.

The RBI, too, resorted to slashing the estimated GDP figures for FY23.

Industrial production, too, has been on a nosedive – it fell to 12% in June from 20% in the last month.

Indian listed companies, too, have reported a 17% decline in overall profits in the quarter from April – June.

The latest figures released last week also point to the lowest output growth in core sectors at its lowest in nearly a year.

Exports to have been hit, after an all-time high of $422 billion in the last financial year, are now showing signs of slowing down.

Another concern is the number of new unicorns, startups with a valuation of more than $1 billion, has sharply come down in recent months.

With foreign investors narrowing their purse strings in anticipation of a recession, Softbank, which invests in the likes of Paytm, Flipkart, Ola and Swiggy in its portfolio, has already warned of a ‘funding winter’.

Conclusion: If the Covid – 19 pandemic hadn’t already strained the economies the world over, Russia’s invasion of Ukraine certainly did.

What it did was strain the already delicate post – Covid recovery.

Economies the world over were looking at stimuli to grow. However, the latest geopolitical tension led to an abrupt rise in costs leaving central banks to tackle inflation by raising interest rates.

Hence, the overall effect was that it made business investments and activity costlier and triggered a collapse in demand as households world over cut back on costs.

India may still be better equipped to tackle a recession, although not wholly immune to it.

We have already witnessed the slowdowns in the economy, and hence, it would be prudent to be well prepared for the fact that we may indeed have a very “wintery” few months ahead!

edited and proofread by nikita sharma