World leaders assembled in Davos, Switzerland, for the 2022 World Economic Forum annual meeting against a backdrop of deepening global friction and uncertainties.
It is against this backdrop that world leaders discussed the most pressing issues at the moment: Ukraine and the future of the global order, the growing urgency of the climate crisis and its impact on food and poverty, the outlook for the recession and the future of work, and how to end Covid-19 and prepare for the next pandemic.
Is there an Incoming global recession?
The Global Economic Outlook panel at Davos, 2022, focused on whether we are heading for a global recession and, if so, how concerned should we be.
Cautious about recession fears in the US, David M. Rubenstein, Co-Founder and Co-Chairman of The Carlyle Group, recalled an anecdote from his time at the White House under President Carter when inflation advisor Alfred Kahn was told, “Don’t use the ‘R’ word. It scares people.” So, he changed it to “banana.” Rubenstein admitted that “the signs are not as favourable as I would like…but a banana may not be that far.”
There is no official definition of recession, but there is general recognition that the term refers to a period of decline in economic activity. Brief periods of decline are not considered recessions. Most commentators and analysts use two consecutive quarters of decline in a country’s real (inflation-adjusted) Gross Domestic Product (GDP) as a practical definition of recession.
The National Bureau of Economic Research (NBER), a private research organisation, defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough.”
The Kenyan context
According to the 25th edition of the World Bank Kenya Economic Update, Aiming High: Securing Education to Sustain the Recovery, the impact of the war in Ukraine is weighing on the global economic recovery from the pandemic. In Kenya, a key risk to the outlook is a further worsening of the current drought, which has a catastrophic effect on food security and livelihoods in affected parts of the country. This necessitates increased social spending on food assistance.
The report further notes that Kenya’s economic performance remained strong in the early months of 2022, but external challenges have mounted. The economy is vulnerable to commodity price shocks resulting from the war, mainly through fuel, fertiliser, wheat and other food imports. The impending General Election set for August this year is also expected to affect Kenya’s economic performance.
In 70 years since 1950, the world economy has experienced four global recessions:1975, 1982, 1991, and 2009. In each of these episodes, there was a contraction in annual real per capita global GDP and broad-based weakness in other key indicators of global economic activity. These episodes were highly synchronised internationally, involving severe economic and financial disruptions in many countries worldwide. The 2009 global recession was the most profound and synchronised episode of the four. The impact of global recessions varied across different groups of countries. During global recessions, average per capita growth declined more in advanced economies than in developing economies.
Is there a need to panic in Kenya? Let’s wait and see.