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Britain faces the worst recession among the G7 countries in 2023

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A difficult year ahead for the global economy is set to hit some countries harder than others.

With 2023 upon us, many bankers, economists, and business leaders have cautioned to brace for a global economic contraction that will send many countries plunging into a recession. As much as one-third of the global economy could enter recession territory this year, IMF director Kristalina Georgieva said over the weekend, warning of a “tough year” ahead for the world.

Georgieva said simultaneous contractions in three major economies—the U.S., the EU, and China—will be the driving forces behind a global recession, as wealthy nations will be unable to escape economic slowdowns.


U.K. in trouble
But with the lingering effects of the pandemic and the Ukraine war continuing to drag down growth for the rest of 2023, some developed countries are set to fare far worse than others.

The U.K. is facing a “deeper and more prolonged recession” than any nation in the G7, a global policy forum representing seven of the world’s most advanced economies, as around four-fifths of economists say the U.K. will be burdened by a much longer recession than its peers, according to a Financial Times survey released Monday.

The FT polled 101 U.K.-based economists on the economic outlook for the country compared with other G7 countries, finding that a “clear majority” of economists surveyed believed the U.K. is in for a much more severe economic contraction that will take longer to recover from.


Economists agreed persistently high inflation, a shrinking workforce, declining trade relations with the EU, and a high exposure to the energy crisis sparked by the Ukraine war were the leading factors behind the U.K.’s comparatively grim prospects.

“The U.K. suffers from an energy shock as bad as Europe’s, an inflation problem…as bad as the U.S., and a unique problem of lack of labor supply from the combination of Brexit and the NHS crisis,” Ricardo Reis, a polled economist and professor at the London School of Economics, said in the survey.

A tough year ahead
Economists surveyed predicted a return to normal by 2024 when inflation begins to dissipate, but the rest of this year will likely be a long slog for the U.K. economy.


The brunt of the burden will likely fall on consumers as inflation rages while borrowing costs increase in tandem with the Bank of England raising interest rates, the survey found. Words used by economists to describe the consumer outlook for the next year ranged from “terrible” to “miserable.”

Annual inflation in the U.K. came in at 10.7% last month, and like many countries the U.K. central bank resorted to a series of interest rate hikes last year to bring prices down.

The Bank of England hiked rates again at its last meeting of 2022 in December, indicating it was prepared to “respond forcefully” with more hikes if inflation showed signs of persisting in 2023.


Economists surveyed by the FT said inflation could stay uncomfortably elevated in the form of high energy prices this year due to the Ukraine war’s aftershocks.

Vladimir Putin has punished Western sanctions by severely limiting Europe’s access to Russian natural gas, which sent energy prices soaring last year. The supply squeeze has sparked an energy crisis on U.K. shores, given the country relies on natural gas for 40% of its electricity generation and 84% of its heating, and unlike the EU has a very limited gas storage capacity to fall back on during times of high energy demand.

The country’s inflation problem has been compounded by its shrinking labor force, which over the past few years has seen record numbers of workers drop out, primarily due to long-term illnesses and mental health issues.


 
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