Tuesday 24 January 2023 3:37 pm

Will the global economy avoid a recession? Some people think so

China’s relaxation of Covid curbs will boost oil demand this year, says the IEA

The global economy will narrowly avoid a recession this year due to China dismantling its zero Covid policy, forecasters have predicted today.

A boost from the world’s second biggest economy re-entering the global community is set to power world GDP 1.9 per cent this year, according to S&P Global Market Intelligence.

Beijing’s surprise scrapping of its tough response to the COvid-19 pandemic, which included snap lockdowns and blanket quarantines, has reduced the risk of the Chinese economy notching a third successive year of lower than possible growth.

Output is now expected to climb five per cent this year and rise 5.8 per cent in 2024, lifting the global economy.

“Government policy is now focused on supporting economic growth, likely through credit policies, infrastructure investments, relaxation of property sector restrictions, and an easing of regulations on technology companies,” S&P Global’s report said.

Experts, however, think Britain is likely to suffer the toughest recession out of rich nations due to it grappling with a knottier inflation surge driven by high energy prices and worker shortages.

Although economists’ worst predictions about the length and depth of a coming recession have been pared back following better than expected recent economic data, experts have warned the slump will knock two per cent off GDP, a similar hit to the early 1990s downturn.

A rapid decline in international energy prices after they reached record highs following Russia’s invasion of Ukraine means Europe is likely to swerve a deep recession.

Gas prices are now lower than before war.

“The risk of severe, energy-induced contractions in output has decreased thanks to temperate early winter weather, high natural gas storage levels, and lower energy prices,” S&P Global said.

Europe is unlikely to suffer a severe recession — Shipments of LNG have helped Europe replace Russian gas supplies (Photo by Sean Gallup/Getty Images)

Economists had rushed out dire warnings of blackouts sweeping across Europe due to the likes of Germany, Italy and France struggling to replace Russian gas supplies.

Global inflation is on course to tumble rapidly this year, dropping to 3.6 per cent by the end of the year, driven lower by supply chains restoring and consumer spending on goods falling back to pre-pandemic trends.

However, central banks are unlikely to stop hiking interest rates in the first half of the year. The Bank of England will kick borrowing costs to a peak of 4.25 per cent, probably in March and keep them there for the rest of 2023.

Similarly, the US Federal Reserve will send rates to 4.75 per cent and the European Central Bank to 3.5 per cent. Cuts will not come until 2024, S&P Global said.