The global economy is in the grips of soaring inflation. However, the rising threat of a global recession is making matters more complicated. Christine Lagarde, the president of the European Central Bank, has a drastic shift of tone on a possible recession. The World Bank warned that the aggressive monetary policy-making of global economies will lead to a recession in 2023. Multinational companies are also warning that the demand slowdown has accelerated.
Lagarde’s Shift Of Tone On Recession
In July, Lagarde revealed that there is no forecast for a recession in 2022 or 2023. However, in a speech today to the Economic and Monetary Affairs Committee of the European Parliament, she revealed that 2023 will be a difficult year for the economy. She believes that the last quarter of 2022 and the first quarter of 2023 will likely be negative.
Two consecutive quarters of negative growth in the GDP meet the technical criteria of a recession. Moreover, the United States has already met this technical criterion. The White House and the Fed dispelled recession fears by pointing to the strength of the labor market and wages. However, as the economic slowdown begins to accelerate, the Fed will find it hard to ignore the possibility of an economic disaster
Similar to the Fed, Lagarde appears steadfast in her stance against inflation. She reveals that the ECB will raise interest rates for the next several meetings. She points out that the wage dynamics remain contained. However, the deprecation of the Euro has led to an increase in inflation levels.
How This Impacts Crypto
The crypto market is strongly correlated with the general, broader market. As global economies will engage in quantitative tightening, the stock market and the crypto market will crash. Excessive aggression can also tip the economy into a recession.
Bitcoin was created after the last great recession in 2008. The market will look out for how crypto performs during a recession.