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Why a Global Recession is Inevitable in 2023

The term "permacrisis," chosen as the word of the year for 2022 by the editors of the Collins English Dictionary, captures the prolonged period of instability and insecurity characterizing the current global landscape as we enter 2023. Vladimir Putin's invasion of Ukraine has triggered the largest land conflict in Europe since 1945, the most significant nuclear threat since the Cuban Missile Crisis, and the most extensive sanctions regime since the 1930s. These events have driven up food and energy prices, resulting in the highest inflation rates since the 1980s and presenting the greatest macroeconomic challenge in the modern era of central banking. Long-held assumptions—such as the inviolability of borders, the non-use of nuclear weapons, low inflation, and reliable energy in wealthy nations—are all under threat.

Three primary shocks have converged to create this turmoil. The foremost is geopolitical. The American-led post-war order is being contested, notably by Putin and more fundamentally by the deteriorating relations between the United States and Xi Jinping's China. The unified response of the US and European countries to Russia's aggression may have revitalized the concept of "the West," especially the transatlantic alliance, but it has also deepened the divide between the West and the rest of the world. Most people globally reside in countries that do not support Western sanctions on Russia. Xi Jinping openly rejects the universal values underpinning the Western order. Economic separation between the world's two largest economies is becoming a reality, and a Chinese invasion of Taiwan is no longer inconceivable. Additionally, cracks are emerging in other established geopolitical alliances, such as the strategic partnership between the US and Saudi Arabia.