Why a global recession is likely unavoidable in 2023

AS WE head towards the start of a new year, warning signs that the global economy is headed for a recession are flashing bright red. For one, the US Treasury yield curve remains deeply inverted, with both the 10-2-year as well as the 10-year to three-month Treasury spread sitting at -77 basis points and -83 basis points (as of Dec 4) respectively.

Historically, the shape of the yield curve is considered to be one of the most consistent and reliable indicators; it has predicted all five US recessions since 1980. Furthermore, the likelihood of a recession tends to be greater the deeper the inversion and the longer the curve stays inverted, a situation that we are experiencing today.

Higher for longer inflation

Aside from the fact that markets are already pricing in a recession – which could very well turn into a self-fulfilling prophecy – the global economy is on a much weaker footing today compared to the beginning of the year. Right now, inflation is arguably still the biggest problem in the world, with most countries still facing price pressures broadening beyond food and energy.