The global economy is teetering on the edge of a recession, an expert in finance has warned.
During lockdown, the GDP of countries across the world plummeted as businesses closed and people were forced to stay home to prevent the spread of COVID.
The EU economy contracted by 6.1% but returned to pre-pandemic levels by the summer of 2021.
However, economic storm clouds are gathering once again and Cormac Lucey, who teaches finance at Trinity Business School, is pessimistic about the outlook of global economy:
“In the first quarter of this year, there were three very substantial shifts in the global economy that, in my view, bring us a lot closer to recession,” he told Down To Business.
“The first one was that in the United States, inflation kept strengthening and that has added to the resolve of the Federal Reserve, the US Central Bank, to choke off inflation by raising interest rates. That’s going to be negative for the global economy.
“The second thing that went wrong was that there was a big outbreak of COVID in China and over there they’re [still implementing] a zero COVID strategy. So effectively, they’ve shut down Shanghai in order to choke off the virus there but that’s also choking off economic growth there.
“And that in turn, thirdly, is leading to a big drop in demand and economic growth across the Eurozone where we’re located.”
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War in Ukraine
Another cause of economic misery is the war in Ukraine; the country is a huge exporter of sunflower oil in particular but the conflict has played havoc with its ability to transport products to overseas markets.
Similarly sanctions are predicted to harm western economies as well as Russia’s; last month Taoiseach Micheál Martin admitted that “further sanctions.. [will] have an impact on the economy.”
EU member states that are especially dependent on Russian fossil fuels have been especially cautious about sanctioning Russian energy.
Germany’s Central Bank calculated that an immediate ban on Russian gas could cost the country up to €165bn and shrink its economy by 2% compared to 2021 levels.
It is a dependence that Berlin is well aware of and the Economy Minister said such a scenario would lead to “mass unemployment, poverty, people who can’t heat their homes, people who run out of petrol”.
Main image: A woman walks past a boarded-up shop on Dublin's Grafton Street. Picture by: Brian Lawless/PA Wire/PA Images