A report by Nomura Holdings Inc revealed many major economies will enter recessions over the next 12 months. This is spurred due to tightening government policies and rising living costs which will push the global economy into a ‘synchronized growth slowdown’.

Nomura said the Eurozone, the UK, Japan, South Korea, Canada, Australia and the US will fall into recession in the research note published by Rob Subbaraman and Si Ying Toh.

They said that central banks will look to restore their inflation-control credibility but are likely to make mistakes on the policy tightening bit even if it sacrifices growth before cutting rates next year.

Still, central banks looking to restore their inflation-control credibility are likely to err on the side of tightening policy too much even if it sacrifices growth, before cutting rates in 2023, they said.

“Increasing signs that the world economy is entering a synchronised growth slowdown, meaning countries can no longer rely on a rebound in exports for growth, have also prompted us to forecast multiple recessions,” they wrote.

High inflation is likely to persist as price pressures have spread beyond commodities to services items, rentals and wages, the note said.

Energy prices had already surged in the second half of 2021 as leading economies lifted coronavirus pandemic lockdowns, but Russia’s invasion of Ukraine has added an extra layer of difficulty, as the EU, the US and UK have sought to isolate Russia economically. Europe is still heavily reliant on Russia for its energy supply, and Vladimir Putin has responded to sanctions by slowing gas supplies.

Russia has cut gas supplies through the Nord Stream 1 pipeline to Germany and the TurkStream pipeline to Bulgaria, and has shut off supplies to Poland via the Yamal pipeline.

Europe is struggling with “conditions that are very much global in nature (surging energy prices and inflation, rising geopolitical risks and uncertainty), which leads us to believe that European economies will suffer the same fate – recession – as the US,” wrote George Buckley, a Nomura economist.

Inflation in the eurozone hit an annual rate of 8.6% in June, the highest since the bloc was created in 1999.

Nomura has lowered its real GDP forecast for this year to 1.8 percent, compared to 2.5 percent earlier, while the projection for next year is seen declining one percent, from 1.3 percent growth earlier.

The persistence of inflation and a single-mandate Fed are among the factors that are driving the downturn, according to the financial services company.

From a very high level, the ongoing persistence of elevated inflation and growing evidence of unanchored inflation expectations are the two key drivers of our expected growth downturn. 

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