Could there be another global financial crisis?

Could there be another global financial crisis?

Globally, 2022 was a tough time in economic terms for many countries. A variety of issues combined to cause real problems for many national economies, with the US and the UK being great examples. This, of course, was on top of the hugely damaging impact of COVID-19 prevention measures, which hit many countries hard in financial terms.

As we move into 2023, this has left some people nervously wondering if another global financial crisis is about to happen. But is this likely to occur? 

Global GDP figures tell us a lot

When trying to work out if another global crisis is about to happen, it is always good to base predictions on factual data. GDP figures are a case in point and something that investors have long used as a way of gauging which sectors might be worth putting money into, or the economic health of any country. To get a handle on the prospect of another financial crisis, knowing the answers to what is gdp and what current data tells us, is key. 

Global gross domestic product levels do not currently make for pretty reading. They show a forecasted slowdown in economic growth around the planet and a drop in growth during 2023 to 1.7% (this figure was 2.9% in 2022). With the World Bank also suggesting a global economic slowdown is about to happen, and research firm Ned Davis predicting a 98% chance of global recession, the signs are ominous.

But what are the factors driving this expected recession in 2023?

Strength of the US dollar

In the same way that employee engagement is key for businesses, the US dollar is crucial for the global economy. The relative strength of this currency has lately been boosted by the Fed’s fiscal policy, and this might not be a good thing in general for the global financial markets.

Although US citizens benefit from a strong dollar when traveling abroad, it causes problems for pretty much everyone else! This has seen other major currencies (such as the UK pound and the yen) experience a torrid time in comparison and weaken next to the dollar. As a result, many countries around the world have reduced expensive imports, which has had a knock on-effect on other nations who rely on the money that exporting goods brings in.

This, of course, can then hit US businesses that export to other countries and see their revenues fall. In addition, an overly strong dollar can also destabilize Wall Street because many firms listed on the S&P 500, trade on a global basis.

The ongoing war in Ukraine

If another financial crisis does hit in the coming year, as expected, the ongoing Russian invasion of Ukraine will be a factor. This has already been a major influence on the economic issues that many nations experienced in 2022, due to the disruption caused to supply chains, energy supplies, and food production/distribution.

If the war continues to rumble on through 2023, then it is hard to see a financial crisis avoided globally. The impact of the conflict affects too many countries and the knock-on effect it has is too great to ignore. If countries like the US continue to send military supplies to the frontline, then the extra money needed to fund this could also cause economic issues for national economies.

Rising inflation plays its part

Rising inflation was a major news story in 2022, and it caused massive problems for many global economies. For example, this was seen in the USA, where rising prices started to impact consumer spending. As a result, some businesses in America saw a downturn in takings and people started to think twice before investing money into assets.

It is a similar picture in the UK, where rising inflation is hitting ordinary people hard and seeing them cut back on what they spend. If this kind of situation carries on and spreads to other nations globally, we could well see rising inflation push the world into another financial crisis.

Is another global financial crisis certain to happen in 2023?

Although the above might paint a pretty bleak picture, it is not 100% certain that we will see a recession in the coming year. Global economics can change quickly, and there are already positive signs to focus on.

China, for example, has recently got back to normal life and opened up for business again. As one of the world’s top economies, this could well see their projected growth, around 5% for 2023, help the world’s economy do better than expected.

2022’s Q4 GDP figures for the US were also more positive than predicted, and this could also help avoid a financial crisis globally if the trend continues. Of course, if the Russia-Ukraine war ends soon, then you would expect to see a major recovery in terms of the global economy.