There will be no one who does not know about “Game of Thrones” which won millions of hearts with its fabulous story and drama. “Winter is Coming” is a very famous series of the Game of Thrones. But in the real-world people all over the Western world are facing the real impact of this line from the perspective of the Economic Recession 2023. In this article, we are going discuss in detail how and why the economic recession in 2023 is coming in such a way that a common person with limited knowledge of the economy or finance could understand.
1. Why We Said ‘Winter is Coming’ to Europe in 2023?
We have said that winter is coming to Europe because of mainly two reasons one is Energy Crisis and the Second is unemployment which is the main factor leading to economic recession. let us discuss both one by one.
The US and the whole of Europe are facing Serious Engery Crises these days. The people are forced to bathe with cold water instead of hot water. The European Countries are Slashing Energy use.
Street lights are being lit only when needed. People are living in homes without heating and inflation is skyrocketing.
Germany has banned hot water in public buildings and swimming pools.
Similarly, France has put bans on illuminated billboards to save energy.
Unemployment in the U.S. is at its lowest. You might not have seen this bad condition of employment in the U.S. According to Bloomberg’s projection, there will be a recession till 2024 and 3.3 million people will lose their jobs in a developed nation
People are losing their jobs in America very fast. Facebook fired 11000 people in one instant. It is the first time that Facebook has done this in 18 years. Facebook has laid off its 13% of strength.
Twitter has fired 3700 employees in Nov 2022. Amazon has fired 10,000 employees, morgan Chase & co. fired 1000 employees and HP fired 6000 employees. Many Multinational companies have stopped new hiring.
This is the current situation where people of the western world are forced to live without heating in winter and people are losing their jobs fastly and inflation is rising in double digits and even would become a worse nightmare for Europian Countries including the United State of America that why we called it Winter is Coming.
The main question that could arise in your mind that why all is happening & why The Governments are failing to control it? To understand this we have to understand some basic things about the economy so that we can easily understand why and how the recession is swallowing the western economies.
2. Understanding the Concept of Economy.
To understand the current situation of the Economy of the Western world we must understand some important terms of the economy like GDP and recession, Depression, Demand and Supply, and Inflation. Let us discuss them one by one.
What Does GDP Mean in the Economy?
The GDP Stands for gross domestic product. Which simply means the production of goods and services in a country during a certain period.
When people buy more, GDP goes up. When people buy less, GDP goes down.
What Does Recession mean in the Economy?
If GDP goes down for 2 Quarters back to back i.e. 6 months that is called recession it is a globally accepted definition of recession. However, there are many other factors considered. At the time of covid, people bought fewer goods. US GPD went down for 2 quarters.
That particular time could be considered a recession but the expert will think that it could be controlled as COVID ended and there was positive growth in the next quarter.
What Does Depression Mean in the Economy?
If GDP goes negative back to back for two quarters it is called a recession. If growth is not as much as it should be it is called slow down. If the recession is more than 3 years it is called a depression.
Depression is only seen one time in the 1930s by this world.
What is The Role of Demand and Supply?
Take an example to your nearest mall. Suppose many people visit the mall to buy goods if the crowd is more shop keeps earning more so there will be more work so more staff is required.
If people buy few things then there will be less crowd, profit will be less, work will be less. So they will need fewer employees in these cases employees lose their job.
If fewer goods are sold in shops the company will make fewer goods and earn less profit so there will be firing in the company.
So if people are buying fewer goods in the market then the recession will come and the recession cause unemployment.
What Does Inflation Mean?
In simple words, Inflation is the rate of increase in prices over a given period.
When demand is more than supply then inflation increases. When demand is less than supply then inflation decreases.
As people needed medicine at the time of COVID. The prices of medicine increased at the rate of 4% globally But the demand for hotels was less so their prices dropped.
One question could rise in your mind if inflation happens on its own due to buying and selling of people then why people are criticizing governments.
Can Government Control The Inflation?
Every government has tools to control the market as it is the driver’s responsibility that the car runs at its optimum speed. If speed is slow then maintain it through the accelerator and if speed fast then controls it through breaks.
Similarly to run an economy at a decent pace the central bank of a country acts as a driver. When the growth of the country is stopped or inflation is high. Then the central banks increase the supply of money in the country. There are different ways to increase the money supply like printing more currency or reducing interest rates.
3. Analysing the reason for the Economic Slow down in the Current scenario.
We have understood some important terms and concepts of the economy which are further helping us to find out the exact reasons for the economic slowdown of the western economy.
All these started at the time of COVID. A lockdown was imposed during covid. The biggest problem was how will people eat & live. How did they earn as the companies were shut down and people were losing jobs? The economy was stopped.
For this, all governments of the world come up with different relief packages. The US government gave money to the unemployed and gave several relief packages. So every government adopts different methods to tackle the down COVID situation.
In short, all governments injected money to improve the economy and GDP. Through this people got money but were not able to spend it due to the lockdown. But as the lockdown removed people start spending but the supply was the same but demand increased when this happens inflation to rise.
But it wasn’t a surprise to the governments as they already know that inflation will rise but it can be controlled in the future. The repo rate in the US was near zero from 2020 to 2022 but increase from 0 to 4 nearly in one year when inflation went started out of control.
If you want to take about the idea of the market you’ll have to watch the repo rate. How the government is increasing the repo rate which helps you give an idea of the market before taking a big investment decision.
Last Nail in The Coffin: Russian Ukraine War
The governments are struggling due pandemic but the biggest disaster was Russia Ukraine war started. All the plans that the government made to deal with COVID, they stayed put. The whole world that was rising from COVID was get trapped in a state of economic crisis due to Russia Ukraine war.
Western nations imposed back-to-back sanctions on Russia. It is a time of globalization. When sanctions are imposed on one nation then not only do that countries suffer it also impacts other countries. But sanctions are not stopped here.
Russian banks were dropped out from the swift network and the assets of Russian banks were frozen. See Ukraine and Russia are both the biggest wheat and barley exporters of the world and 30 % world’s supply of wheat and barley comes from them.
So as the war started food prices in the world increased. With this Russia is the world’s second-largest exporter of crude oil and gas behind Saudi Arabia. About 12 % of crude oil in the world produces in Russia. But to teach the lesson to Russia US and other western countries banned the import of Russia’s oil and gas.
Due to this ban imposed countries have to import oil and gas from other countries. See demand for oil and gas was the same but in countries that were supplied were decreased.
Due to this prices of oil and gas increased all around the world affecting everything. Due to these imposed sanctions on Russia, Europe got itself into trouble.
Ukraine Russia war became a disaster for Europe. The biggest reason was natural gas. Natural gas is Europe’s lifeline. There is so much cold at the time of winter in Europe that it becomes too difficult to live without gas. Natural gas keeps Europe warm in winter.
Europe completely depends upon natural gas but the biggest problem is they don’t produce natural gas but import from outside, and Russia is their biggest supplier. Europe needs natural gas for winter to warm their houses, generate electricity, run factories, or transport they need natural gas for everything.
Over 34% of energy comes from gas in Europe. Europe is the biggest importer of gas in the world. But in august 2022 Russia stopped ‘Nord steam pipeline 1’ and said it would remain closed until the sanctions were lifted which affect not only the economy of Europe but also the life of their people. Inflation due to COVID was there but increased more due to Russia Ukraine war. That’s the only reason that inflation in US and Europe is increasing by double digits every month.
Argentina has broken all the records for inflation. It won the football World Cup recently. Its inflation reached 92.4% in November 2022 and continuously increasing.
All the governments are trying to control inflation by injecting money for the last year but the economists are saying that governments are trying but there will be a time when the government will be able to do nothing in 2023.
Economist Nouriel Roubini, also known as Mr. Doom as he predicted the 2008 recession. Now according to him, the share market will be down by 40% and this recession will be bigger than the 2008 recession and stay for a longer time. According to European Union, 19 countries in Europe will see an economic recession this winter so surly winter is coming for Western countries.
The whole world special United States and Europe are sinking into an Economic crisis. This winter western counties are struggling with the energy crisis due to a shortage of Gas and oil. People are forced to live without heating in the house. Many financial experts and economists have already made a prediction for an economic recession in 2023. People are losing their jobs, inflation is skyrocketing and governments are failing to control the situation. That is why we have said Winter is coming for Europe and U.S. The situation may worsen in the coming days, so prepare for that.