Global economy: is the “shallow, short” recession possible


■In the first half of 2023, the possibility of falling into recession is increasing, but a "shallow, short" recession is seen
■The immediate end of monetary tightening is unlikely to be seen and will face a trade-off between adjustment depth and time

The global economy in 2022 followed the path that many experts had seen in the previous year. The main reason is Russia's invasion of Ukraine following February. International commodity prices such as crude oil, natural gas and wheat rose sharply, leading to a global price surge. At the end of last year, policy support after the corona crisis had been suspended in the year 2022, and with the gradual economic slowdown, monetary policy was expected to be normalized.

Why is "price stability" important? The Bank of Japan defines the "stability of prices" as a situation in which various economic entities in households and businesses can make decisions about economic activities such as consumption and investment without worrying about fluctuations in price levels in general goods and services. Since price increases means the increase in the cost of money holdings, it is interpreted that the stability of prices is a necessary condition for stabilizing the value of money paid for consideration of goods and services in economic activities. As a "issuing bank," the central bank will inevitably be responsible for stabilizing prices in order to maintain the stability of monetary value and the credibility of the currency.

Since the global financial crisis in 2008-09, price stability has mainly meant a rise in price inflation to avoid deflation and to target levels. Especially in the late 2010's, the "high economic economy" policy was aimed at overheating the economy to raise prices. The rise in prices in 2022 raised the priority of traditional monetary policy for inflation. In the medium term, it is expected that the policy of monetary policy will be affected by a review of the monetary policy policy that lasted for the past 10 years.

In 2023, the tightening of the previous fiscal tightening has led to a further slowdown in the economy. At present, many experts are expected to stay in a "shallow, short" recession and slow down in the second half of the year. It is premised that price stability is expected to be seen and financial tightening is reviewed. With regard to the current situation, the United States and Europe have not resolved labor supply and demand, and that the underlying inflation rate is at a level above the level of 2 percent. If it comes to a "shallow" recession, the adjustments will require long-term adjustments and, if it remains in the "short" recession, economic adjustments will be significantly relaxed. The course of the economy will depend on the monetary policy of 2023.