Are We Hitting The Recession In 2023?

4 Things Every Responsible Business Owner Should Know
Source: Pixabay

In this article, we will analyze the recession and its causes, will describe current economic trends, and then make our conclusion if the recession fears could have a factual basis. First, we will look at fundamentals and then add some technical indicators and signals as well.

Current World Economic Status

Before we make any conclusions about recession, first, let’s try to define recession and its causes. Recession is a prolonged downward economic growth, economic activities are greatly reduced during this time and it is accompanied usually by sustained negative GDP growth. Knowing the definition we can now look at some fundamental data and conclude how likely it is to face the recession in 2023.

But how does the current world economy look? War in Ukraine, rising oil prices, higher interest rates, and higher inflation across the world, add to this the anticipation of a weaker short-term economy and we have a strong precursor which could lead to a recession. The International Monetary Fund also has some data about world economic growth and it shows that numbers are declining. What else could be used to predict the recession in 2023? An inverted yield curve could be useful here as well.

An inverted yield curve can be caused by the current economic status worldwide. This happens when short-term bond yields become higher than long-term ones. This occurs when traders await the short-term economy to be weaker. Although every recession had an inverted yield curve before it, that alone can’t be used to predict a recession with 100% accuracy. In the US Inflation is high and the Fed is raising interest rates. This leads to consumers spending less money and economic growth is reduced.

Technical analysis for the 2023 recession

We can use technical analysis tools on price charts for major currency pairs (EURUSD, GBPUSD, USDJPY, USDCHF) and then use this information to predict the market. If the recession hits the market in 2023, strong and sustained downtrends will follow. Thereby, we could use technical indicators like RSI to wait for the sell signal. Currently, the RSI shows overbought levels.

The Forex market is close to overbought on the EUR/USD pair on the weekly chart and it has already generated a sell signal on the daily chart. Now, let’s not jump in and use this analysis as a call to action, this is not financial advice, but a good source for market analysis. That said, you can use this article as a good educational source. Maybe it could increase your trading strategy performance too. Just remember to always combine technicals with strong fundamentals and you are in a good spot.

How Likely Is A Recession In 2023?

All pieces of information from the above analysis and research, and other psychological and geopolitical factors described earlier could be a good predictor to assume that in 2023 a recession is highly likely to happen. According to CNBC, a survey recession is going to happen in the first half of 2023. CNBC is a credible news source and it’s not the only one that predicts a recession in 2023. Other sources and data also agree with our analysis that 2023 is going to be a year of recession.

Since we are at the start of winter and energy prices are rising, this negative trend is going to accelerate even more before we see any positive indications for a better world economic situation. If the Fed continues to raise interest rates this will drive the economic downfall even further. And it is likely the Fed is raising interest rates further according to all media sources right now. Jerome Powell himself seems motivated to reduce inflation at comfortable levels and 2023 is going to get more painful at the latest for the first half of the year.

To continue analysis from a consumer perspective, many people are hesitant to take debt and increase their expenses. Covid also played a role in exhausting many people’s savings. As fewer and fewer buyers are willing to spend money, all businesses including financial service providers are going to make fewer profits. High-interest rates make it difficult for big enterprises to accumulate funds too. Many companies already have substantial debt because of cheap money during the pandemic zero percent interest rates policies and some of them even went bankrupt. Bloomberg also agrees with our arguments in its later articles about the Fed maintaining high-interest rates.

To wrap it up, the Fed is raising Interest rates, War in Ukraine is causing an energy crisis in Europe, and inflation is hitting most countries across the world. The IMF has a bleak forecast for world economic growth rates. With all this information summed up, we can say with high confidence that a recession is highly probable in 2023.

About the author

Saman Iqbal

Saman is a law student. She enjoys writing about tech, politics and the world in general. She's an avid reader and writes fictional prose in her free time.

Daily Newsletter