Tag: World economy

Evaluating the state of the pandemic: Euronews asks health leaders

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This year’s annual World Economic Forum in Davos marks the biggest gathering of world leaders since the Covid-19 pandemic. 

It was three years ago when in January 2020, the World Health Organization (WHO) declared a public health emergency of international concern. 

Despite efforts to learn lessons from it – and some world leaders declaring the end of it – the pandemic still represents a major health risk and remains far from over.  

To evaluate the state of the pandemic, the increase in cases globally, and discuss the consequences on the healthcare system worldwide, Euronews’ Sasha Vakulina spoke to Maria Leptin, President of the European Research Council, Seth Berkley Chief Executive Officer at GAVI, the Vaccine Alliance, Stéphane Bancel Chief Executive Officer at Moderna and Michelle Williams, the Dean of the Faculty at Harvard Chan School of Public Health.

The current state of the pandemic

Michelle Williams: “Advances in therapeutics and vaccines have really allowed us to reopen our society,” said Michelle Williams. “And I think part of the enthusiasm comes from the fact that we are able to have gatherings like this again after a long period of disruption.” 

“So, setting the context, we still in the United States have 526 deaths…per day, from Covid. And that’s up since November, October, where we were in the four hundreds. Now, what’s really disappointing is nine out of ten of those deaths could be averted if we took our vaccines and boosters and practiced the other behavioural aspects, ventilation, mask-wearing when appropriate, distance and so on. And so for me, as a public health person, knowing that we could avert nine out of ten of those deaths reminds me of the fact that we have to avoid prematurely talking about this pandemic being over,” she added. 

“I also think that… when we talk about context, we must also discuss the more chronic implications of this pandemic. We must discuss the fact that there, in the US alone, over 174,000 Covid infants will have a life course that’s impacted by this pandemic. We also have to consider the fact that long Covid is a reality, and it’s not only going to be impacting individuals and families, but the economic impact of long Covid as quantified by Larry Summers and David Cutler, both of Harvard, is that it’s going to cost us $3.7 trillion (€3.4 trillion). Our healthcare system is still in distress. And what I hope people will understand is the vaccine not only protects individuals from transmission and severity, but it protects our health systems. We’re able to have a functional, or almost functional, health system because we don’t have the kinds of severe disease that we were facing in 2020. And we need to also recognise that our health systems have to recover as well. We have burnout from our healthcare workers and we have case mixes of chronic diseases that are worse now and require more intensive medical intervention than before.”

The Covid-19 vaccine delivery partnership and vaccine delivery in low- and middle-income countries

Seth Berkley: “Three years ago, we sat here in Davos and we didn’t know where this was going to go. There were some political leaders saying, you know, it’s going nowhere. But Stéphane was part of the conversation and Richard Hatchett and I sat down and said, [during] the last pandemic with flu, the developing world got no vaccines. They were all bought up by wealthy countries. So, we knew that was what was going to happen if this turned into a global pandemic. And so, we started this concept of COVAX, which we brought lots of other people into, and the idea was to try to solve that problem.” 

“First of all, the science was amazing. 327 days! If you had asked us, we had thought maybe we could get there in 18 months, two years. So [it’s] extraordinary, you know, advancements in the science. But on the policy side as well. We did our first dose in the developing world 39 days after the first dose was done in a wealthy country. Of course, it should be [on] the same day. But that’s… a record. And what we were able to do then was to bring doses to the developing world.” 

“Now, it wasn’t smooth. It didn’t go well. But, in the first year, we had put a goal together of 950 million doses, because that’s what we thought we could get for low- and lower-middle-income countries. And we ended up with about 930 million doses. So, we came close to that and we intensified a programme both providing finance and technical assistance. And today there are seven countries with less than 10% coverage. And, as you can imagine, six of those are quite fragile countries with fragile health systems. The problem we have right now is since the beginning of 2022, we’ve had enough vaccines to provide whatever countries want.” 

“The challenge has been getting the demand. Part of it is the world says, you know, we’re done with Covid. Of course, the virus is not done with us, as Michelle said. And, what we really need to do is make sure that policymakers understand that we’re continuing to see new variants…So, the best thing we can do is use the prevention methods, but also make sure we vaccinate our high-risk populations so they’re protected against severe disease and death.”

Vaccine development and adoption in regard to different variants and sub-variants

Stéphane Bancel: “We have plants in the US and in Switzerland. We’ve shown this summer that we are able to adapt to variants very quickly. If you think about it…in the US, Peter Marks told us on 28 June [that] we want for the US to have a BA.5 Omicron booster. And by early September, on Labour Day weekend, it was in US pharmacies. 60 days! Which…in the old world of vaccines would usually be unthinkable. So, we keep on working on technologies to improve that.” 

“The other piece that we are working on also – because Seth and I had many, many discussions over the last few years – is how do we build manufacturing capacity around the world? We had a lot of export restrictions during the pandemic, which was really painful for obvious reasons, even from countries who say they will not limit exports. Trust me, they were. And so we’re very excited now that we are building a factory in Canada. We already broke ground in the fall. We’re building a factory in Australia. We are going to start a factory this quarter in the UK and we’re also going to start building a factory in Kenya. We’re talking to a couple more countries because I would really like every continent to have MRNA capacity because the amazing thing about MRNA is you can use the same facility, the same plant, the same machines, to make any vaccine you want.”

The issue of science denial

Maria Leptin: “Perhaps interestingly, two of the countries which were most successful in getting good coverage of vaccination based this not at all on getting their citizens to try and understand the science. One is Bhutan, where they were very successful in preparing a campaign and (they were) involved. They were sensitive to the country’s needs, to the citizens’ needs, involved in informing the religious establishment and in fact, [in] using them in finding the right time and date. And they got fantastic coverage. No science was explained. The other example I know of is Portugal, where the campaign was handed to a retired army general. And the army general just treated the country as his troops and he rallied the troops. He declared it as a war that the country in patriotic passion was going to fight together. And they [were] up there! I think they were leading in Europe, if not the world.”

“The trouble is that many citizens don’t understand uncertainty as part of the scientific method. And if I say today, ‘this is my best belief’ with that uncertainty and somebody else says tomorrow, ‘you didn’t do that experiment right’…That’s the way we are! So we’ve got to go so profoundly into educating citizens about the scientific method if we want better trust in science. And the bad news is, who’s it going to be? It’s not going to be us because we’re the ones who are mistrusted.”

Michelle Williams: “What you have to do if you’re really interested in communicating information that will motivate people to change their behaviour, you have to take the approach of meeting them where they are, explaining it and presenting the information in a way where they will adopt the desirable behaviour and feel good about it. And maybe that was the secret sauce to what happened in Portugal and in Bhutan. Health communicators and scientists worked to communicate the risks and what we understand today… All of us have to begin to realise that we have to stop our professional scientific speak, or engage others who can translate for us and meet people where they are. If we do that, it will be the stepping stone of building trust.”

Seth Berkley: “What you didn’t mention was the intentionality, the politicisation of the process. There were also attacks that were done. There were bots in social media that were putting out misinformation on both sides. And lastly, and this is what’s completely different, is today a rumour spreads literally at the speed of light.”

Health governance: How can it be improved?

Michelle Williams: “There has to be mindset shifting in what it means to engage in multilateral agreements around global health issues. And there have to be real improvements in the infrastructure and the finances and the workforce. And that’s going to take leadership and it’s going to take a commitment to true multilateral engagement. We have to have people who are committed to the exercise of global health diplomacy. And it’s a science and an art, but it also has to be a commitment for all humanity, because we know and we knew this since 2014 with Ebola, that it only takes 8 hours for a threat from over there to be a threat here.” 

“And so, we have to realise not just in rhetoric but in practice, the science is really important – I am a molecular biologist and an epidemiologist – but governance has to realise that they have been underfunding science in understanding human behaviour and they have underinvested in the implementation of the scientific knowledge and the tools that we have. So, we have to get to a level where governance is appreciating funding communities, funding regional health officers, equipping them with tools and engaging in creating a safety net that goes from knowledge creation and creation of vaccines and therapeutics to explaining and motivating and cultivating that environment of trust for adopting behaviours that promote health for individuals, communities, families in the world.”

Seth Berkley: “One of the things we learned is there were countries who were supporting us, giving us money, cheering us on, and then going to the countries that were producing the vaccines and buying them for themselves and using them. A national government is supposed to protect its population. That’s its job. And when we said you’re only safe if we’re all safe, what we were talking about is, yes, protect your high-risk populations, but then protect other high-risk populations. And instead, many countries said, well, you know, forget about others, we’re just going to do our own. And then we saw these waves of disease and people realised it is really a global commons.”

Stéphane Bancel: I still believe we can do much better, with a lot of things we’ve learned about also how we scale the companies. And so, one of the things, for example, we are doing… is trying to get into the clinic all the 15 vaccines against the 15 high-priority viruses defined by WHO and CEPI to be able to get clinical data on those. Because if we had known the dose of a vaccine against the coronavirus in January 2020, we might have saved another three months. So, think about the number of lives that could have been saved with a vaccine launched, you know, in August versus, you know, in December.”

“What I worry about now is a lot of countries are forgetting the pandemic is still ongoing. Still, a lot of people are dying every day, but a lot of governments have moved to other things. And that’s a problem because we need investments in public health infrastructure, in healthcare workers, in genomic surveillance. There are so many pieces that need to happen.”

How can we be better prepared for future pandemics?

Maria Leptin: My plea is: keep investing in the basic science. Let’s not forget that. The next pandemic may be different. We don’t even know. Nature can come up with anything. We’re prepared in many ways. I want to say: don’t restrict funding to the fundamental sciences in their full breadth. You never know what we’ll need for the next outbreak.

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How is Europe preparing for the next phase of the war in Ukraine?

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“War in Europe: Year Two” was the topic of one of the most thought-provoking sessions at this year’s World Economic Forum in Davos.

Hosted by Euronews’s Sasha Vakulina, the panel was made up of Sanna Marin, Prime Minister of Finland, Gregory Meeks, Congressman for New York and ranking member of the House Foreign Affairs Committee, Maia Sandu, President of the Republic of Moldova and Jean-Pierre Clamadieu, Chairman of the Board at Engie Group.

What emerged was a picture of a resilient Western alliance, ready to support Ukraine for as long as is needed in its fight against Russian invasion. Watch the session in the video player above.

What they said

Sasha Vakulina, Euronews: The first question is going to be to Sanna Marin. To what extent has the war resulted in broad shifts when it comes to all these aspects: economic, political and also military links and connections across Europe? And in what ways can we expect these links and connections to continue to evolve this year as we’re going into year two of the war in Europe.

Sanna Marin, Prime Minister of Finland: Well, thank you for having us in this panel. I fully agree with the Commission’s President, Ursula von der Leyen, that the war is not only affecting Ukraine, it affects the whole of Europe, the whole world actually. We are seeing this geopolitical change in the world and there is a war of values going on in the world. The rules-based order is being challenged and this affects everyone: not only Ukraine, but everyone in the world. And the war affects Europe in very concrete ways as well. We are also not only in the war in Ukraine, but also in an energy war in Europe. Russia is using energy as a tool, as a weapon against Europe, and it tries to diminish our support to Ukraine. Putin tries to make us afraid of Russia, about what might happen. He wants us and our citizens to think, what are the prices of the war? And we are already seeing people frustrated with the high energy prices everywhere in Europe. But the answer is not to weaken our support towards Ukraine. The answer needs to be actually the opposite. We need to send more support to Ukraine, more weapons, more humanitarian aid, more financial aid to make sure that the war will end as soon as possible and for a Ukrainian win. And this is crucial. So our aspect of Putin’s screwdriver that he is using now with the energy against Europe should be that we are sending more support for Ukraine

Sasha Vakulina: President Sandu, alongside socio-economic disruptions, what are the other key points of vulnerability with the effects of the war exposed in Europe and what is being done to mitigate those vulnerabilities? Because your country has a very specific position when it comes to this war in Europe and Russia’s aggression on Ukraine.

Maia Sandu, President of the Republic of Moldova: Of course, Moldova was more vulnerable because it depended 100% on gas purchases before the war started. Now we get only 40% of our gas needs from Gazprom, and we managed to quickly to diversify and to find other sources to supply energy to the country. The propaganda – which is a very big issue, disinformation, is of course a big issue for my country. But I think this is a big issue for many countries and we need to learn how to be more efficient to tackle this issue: it’s cyber security.

I totally agree with the issue that Russia counted on blackmailing us with the energy crisis and Europe managed to find a solution. And this was not easy. And yes, we have to pay a price and we feel bad that our people have to pay a high price. But, we believe in democracy. We value democracy. We want to be part of the free world. And the only solution is to stay together. And yes, it is difficult, but we have to help Ukraine win this war because, otherwise, all of us will be in danger.

Sasha Vakulina: Mr. Clamadieu, which underlying factors of the current economic downturn and potential recession facing Europe do you think are most exacerbated by the war? And to what degree will Europe’s economic recovery hinge on the outcomes of this war?

Jean-Pierre Clamadieu, Chairman of the Board at Engie Group: We are in a situation today where I’m pretty confident to say that there won’t be disruption in the supply of energy, neither gas nor electricity in Europe during the last few months of winter. Prices are starting to go down. We are not back where we were two years ago, but we are back at a level which is a bit more sustainable. And I don’t want to downplay the impact of this conflict. Obviously, this creates big competitiveness issues for industries in Europe versus the US. I think it will probably take another couple of years before the flow of LNG, is again offering visibility for European consumers. But, frankly speaking, thanks to the alignment of political decision-makers and industries, we’ve been able to go through this year of 2022 probably much better than we expected when this conflict started.

Sasha Vakulina: Obviously, the 24th of February in just about a month is going to mark one year. Everybody wants to know… it’s a $1 billion (or even more) question… How long we’re in this and how it’s going to go? What do you think of that?

Sanna Marin: The key elements are that we have to say very frankly and out loud that we will support Ukraine as long as needed. There isn’t that kind of scenario or possibility that the support from Europe or the Western world or democracies will diminish. That’s not a possibility. We will support as long as needed: five years, ten years, fifteen years… whatever it takes. We will support Ukraine and this will not stop. And it’s for Ukrainians to decide when they are ready to negotiate, when they are ready to make some peace agreement that they could agree on. And we will support. Our job is to support them. And another way that we could influence the situation: we are already sending arms, we are sending weapons, and we need to send more and more advanced weapons. We need to continue sending financial support and humanitarian support, taking refugees from Ukraine, putting heavier sanctions against Russia. But one thing that I really think that might affect the situation is the frozen assets. There are a lot of frozen assets from the Russian Central Bank, a lot of frozen assets from oligarchs. And we need to find solutions how to use these assets. I know it’s legally – and from a legal point of view – it’s a very difficult matter and very difficult issue. But I think we need to find solutions. How to use these funds to support Ukraine, to rebuild Ukraine? I think this could affect the war more than we think, because there are many interests behind these assets and this money. So, I think that might really affect the situation. It doesn’t solve everything, but I think that’s the one thing that we haven’t yet used. And I think we need to find the legal framework to do this, to use those assets to support Ukraine.

Sasha Vakulina: And this process of rebuilding and reconstruction, it’s not being postponed. It’s not like when the war is over that’s going to happen. No, you have all known when you visited the country, you know exactly that it has already started step-by-step. It’s from the regions, it’s from the suburbs. The places that have been liberated, they’re already being reconstructed. So this is, of course, something that is already on and is going to be in focus this year as well. Gregory Meeks, what’s your assessment of the possible trajectories of what the war in Ukraine might take going into 2023 and what possible trajectories could NATO take as well?

Gregory Meeks, Congressman for New York and ranking member of the House Foreign Affairs Committee: I think that you will continue to see Ukraine winning this war and fighting when we give them the ammunition and what they need to fight. Because that determination, that’s not going to change. That’s unshakeable. And as the prime minister just indicated, what is absolutely devastating to Putin is our solid unity. He’s hoping and looking for ways to shake it. So, we’ve got to make sure that… And I think that the Russian propaganda is going to be defeated moving forward. Some individuals, you know, when I moved around before and I talked to some people, even some in the United States at one point, listening to the propaganda, thinking that, you know, as Russia was talking about, that it was Ukraine that was being the aggressors. Obviously not true. So, I see us coming closer together and bringing in other allies from other areas of the world also. Because, as this intensifies and they see the humanitarian crises that is taking place, when they see that people are forced, that are being utilised, civilians are being utilised, killed, freezing to death in cold weather… When they see the human dangers that have been taking place and how it is a humanitarian criminal act that Putin’s committing, that will bring us even closer together. So, as I look at where we’re going down, people have talked about certain things because of the Congress has changed in the United States of America that now in the House, for example, it’s a split… Overwhelmingly the American people, overwhelmingly the people, for example, Democrats and Republicans, are focussed in standing strongly behind Ukraine. And that’s only going to intensify as we move forward, which makes me believe that that will lead to success in the long run as we get through the winter and into the summertime.

Sasha Vakulina: The other aspect I want to go to now is the war in Ukraine. As a consequence, we all have a greater appreciation of alliances as well and working together. And of course, NATO being one of them. So I’m going to ask you about that. You know, when Finland and Sweden obviously announced NATO aspiration, there was this tweet that said, I can’t remember the author and I apologise if you were the author, that what Putin tried to do, he wanted the Finland-isation of Ukraine, but instead what he did was the Ukraine-isation of Finland and Sweden. So, you are now on the way there. So how is the process going? Because Sweden and Finland’s NATO aspiration happened in response to the war in Ukraine. And how is it going? How is the cooperation happening and the solidarity as well? Because you are doing it not just yourself, but – you said it – you’re going to be doing it only hand-in-hand with Sweden. Because that’s another alliance, that’s another appreciation of alliances.

Sanna Marin: Well, the Finnish atmosphere and the mindset of people changed at the same time when Russia attacked Ukraine. Before that moment, if you asked Finnish people, do they think that Finland should join NATO, the majority would have said no. We have the possibility to apply. That’s very important that we have that possibility. But we didn’t have that kind of discussion, active discussion, before. And if you asked the majority of Finnish people or the parliament, they would have said: “No, we don’t see that we should right now apply to NATO membership.” But, when Russia attacked Ukraine, everything changed. The world changed. Our neighbour was no longer the same neighbour. It was an aggressive, an aggressive neighbour that went across that border. And Finnish people asked themselves what is the border that Russia wouldn’t cross? And that’s the NATO border. And that’s why Finnish people wanted us to go to NATO. 188 parliamentarians out of 200 voted in favour of NATO membership. So, we are not… We don’t have 100%, but we are very close in our Parliament as well. And we have this unity in Finland. We have this cohesion and consensus about the NATO application. And I’m also very happy that we made this decision at the same time that our Swedish neighbours did, because we are also sharing of course the same geopolitical atmosphere, the same geopolitical security environment.

So, I think from NATO’s perspective also it’s very important that Finland and Sweden is applying and entering NATO together. Of course, there are still two countries that haven’t ratified: Hungary and Turkey. And I have talked, for example, with Prime Minister Orban every time that we meet in the European Council. And he has said that they will ratify as soon as the parliament will start its term this spring, hopefully very soon. Turkey, we don’t have that timetable, yet. Of course, we hope that that will happen sooner than later. We are fulfilling all the criteria, we are ticking all the boxes that is needed to become a NATO member. And actually, for example, Finland is already using over 2% of our GDP on defence and we have done this for quite some time. And we are seeing a lot of support from the Ukrainian people to fight for their country. They are fighting for their freedom, for their independence and their country. And, if you ask Finnish people how willing they are to defend Finland, I think we are ranked number one. Ukraine is number two. So, we have been in war with Russia and we know what that’s like. And we don’t want ever again, ever again there to be a war on Finnish soil. And that’s why we are applying to NATO, so that there wouldn’t be a war in Finland ever again. That’s the border that Russia wouldn’t cross. And that’s why we’re applying to NATO.

Sasha Vakulina: President Sandu, Moldova is applying for the European Union. That’s another alliance, of course, and appreciation of it. How important is that? How also has the view on it changed? Because Moldova has also experienced some opinion polls that were not necessarily always supporting the idea. And, also, just to follow up on what Gregory Meeks said there, the propaganda issue, of course, is something that happened a lot in Moldova over years.

Maia Sandu: I actually believe that Moldova’s chance to survive as a democracy is only within the EU and just being realistic about what’s going to happen in our region in the next, I don’t know, ten, 15 years. Of course, we all hope for a victory, for a speedy victory of Ukraine, and this is going to happen. But, we cannot see Russia becoming a democratic country very soon. And this means that the challenges for the region are still going to be there. Moldova survived, I mean, managed to deal with the challenges that you asked me at the beginning to a big extent thanks to the support we received from the EU and from the development partners. And we are very grateful. And it is important to have a stable Moldova. It’s important for us, it’s important for Ukraine, it’s important for the EU. For the EU, it is important to have a peaceful and stable Ukraine. It is important to have a peaceful and stable Moldova and that’s why the EU enlargement is important. I think Ukraine has proved it’s paying the highest price for democracy and for EU values. Moldovans have been doing their best. And yes, the propaganda is still strong and we are fighting the propaganda. But we have more than 70% of people over the years, despite the propaganda, despite the poverty and the many problems we’ve been facing. We have this constant support for the EU integration. And I think the recent gesture by the generosity shown by the Moldovan people when they managed to help 600,000 to 700,000 Ukrainian refugees shows that we value EU values. And we value peace and we value freedom. So, the EU enlargement will make the EU stronger because the EU needs a peaceful and stable Ukraine, Moldova and the rest of the countries which are aspiring for EU accession.

Sasha Vakulina: President Sandu, do you think – as a long shot for the longer future – do you think that NATO aspirations are something that Moldova could go into after?

Maia Sandu: We do feel how vulnerable we are. Ukraine is defending us literally and we are taking steps to improve our defence sector. But we are very realistic about what we can do. We are a democratic country and we have to have the discussion. There should be popular support. But we are having this serious discussion now on whether we can, by ourselves, defend ourselves in a new world where we see that war is a real danger.

Sasha Vakulina: John-Pierre Clamadieu, how have the impacts of the war in Ukraine reshaped the global energy landscape and what are your expectations when it comes to speeding up this transition away from fossil fuel dependency as well, and Russian, but also the transition in general? [00:18:54][14.3]

Jean-Pierre Clamadieu: I think the challenge for Europe is really to make sure that we can strengthen our energy system and this is completely aligned with the need to speed up the energy transition. We don’t have any fossil resources in Europe, a bit of coal, but it’s not something we want to build on. So, the challenge now is to make sure that we can speed up the development of renewables. The EU has an agenda, the Fit for 55 agenda. We need to make sure that the current situation, the mitigation of a crisis, does not slow down this agenda. On the contrary. And what we see today is a number of decisions which indeed should create the conditions for us to speed up the development of renewables, to speed up the development of storage, speed up the development of hydrogen… With this objective of speeding up energy transition, this will help us achieve strategic independence. And this is something that we absolutely need.

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Why everyone thinks a recession is coming in 2023

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People who lost their jobs wait in line to file for unemployment following an outbreak of the coronavirus disease (COVID-19), at an Arkansas Workforce Center in Fort Smith, Arkansas, U.S. April 6, 2020.

Nick Oxford | File Photo | REUTERS

Recessions often take everyone by surprise. There’s a very good chance the next one will not.

Economists have been forecasting a recession for months now, and most see it starting early next year. Whether it’s deep or shallow, long or short, is up for debate, but the idea that the economy is going into a period of contraction is pretty much the consensus view among economists. 

“Historically, when you have high inflation, and the Fed is jacking up interest rates to quell inflation, that results in a downturn or recession,” said Mark Zandi, chief economist at Moody’s Analytics. “That invariably happens — the classic overheating scenario that leads to a recession. We’ve seen this story before. When inflation picks up and the Fed responds by pushing up interest rates, the economy ultimately caves under the weight of higher interest rates.”

Zandi is in the minority of economists who believe the Federal Reserve can avoid a recession by raising rates just long enough to avoid squashing growth. But he said expectations are high that the economy will swoon.

“Usually recessions sneak up on us. CEOs never talk about recessions,” said Zandi. “Now it seems CEOs are falling over themselves to say we’re falling into a recession. … Every person on TV says recession. Every economist says recession. I’ve never seen anything like it.”

Fed causing it this time

Ironically, the Fed is slowing the economy, after it came to the rescue in the last two economic downturns. The central bank helped stimulate lending by taking interest rates to zero, and boosted market liquidity by adding trillions of dollars in assets to its balance sheet. It is now unwinding that balance sheet, and has rapidly raised interest rates from zero in March — to a range of 4.25% to 4.5% this month.

But in those last two recessions, policymakers did not need to worry about high inflation biting into consumer or corporate spending power, and creeping across the economy through the supply chain and rising wages.

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The Fed now has a serious battle with inflation. It forecasts additional rate hikes, up to about 5.1% by early next year, and economists expect it may maintain those high rates to control inflation.

Those higher rates are already taking a toll on the housing market, with home sales down 35.4% from last year in November, the 10th month in a row of decline. The 30-year mortgage rate is close to 7%. And consumer inflation was still running at a hot 7.1% annual rate in November.

“You have to blow the dust off your economics textbook. This is going to be be a classic recession,” said Tom Simons, money market economist at Jefferies. “The transmission mechanism we’re going to see it work through first in the beginning of next year, we’ll start to see some significant margin compression in corporate profits. Once that starts to take hold, they’re going to take steps to cut their expenses. The first place we’re going to see it is in reducing headcount. We’ll see that by the middle of next year, and that’s when we’ll see economic growth slowdown significantly and inflation will come down as well.”

How bad will it be?

A recession is considered to be a prolonged economic downturn that broadly affects the economy and typically lasts two quarters or more. The National Bureau of Economic Research, the arbiter of recessions, considers how deep the slowdown is, how wide spread it is and how long it lasts.

However, if any factor is severe enough, the NBER could declare a recession. For instance, the pandemic downturn in 2020 was so sudden and sharp with wide-reaching impact that it was determined to be a recession even though it was very short.

“I’m hoping for a short, shallow one, but hope springs eternal,” said Diane Swonk, chief economist at KPMG. “The good news is we should be able to recover from it quickly. We do have good balance sheets, and you could get a response to lower rates once the Fed starts easing. Fed-induced recessions are not balance sheet recessions.”

The Federal Reserve’s latest economic projections show the economy growing at a pace of 0.5% in 2023, and it does not forecast a recession.

“We’ll have one because the Fed is trying to create one,” said Swonk. “When you say growth is going to stall out to zero and the unemployment rate is going to rise … it’s clear the Fed has got a recession in its forecast but they won’t say it.” The central bank forecasts unemployment could rise next year to 4.6% from its current 3.7%.

Fed reversal?

How long policymakers will be able to hold interest rates at high levels is unclear. Traders in the futures market expect the Fed to start cutting rates by the end of 2023. In its own forecast, the central bank shows rate cuts starting in 2024.

Swonk believes the Fed will have to backtrack on higher rates at some point because of the recession, but Simons expects a recession could run through the end of 2024 in a period of high rates.

 “The market clearly thinks the Fed is going to reverse course on rates as things turn down,” said Simons. “What isn’t appreciated is the Fed needs this in order to keep their long-term credibility on inflation.”

The last two recessions came after shocks. The recession in 2008 started in the financial system, and the pending recession will be nothing like that, Simons said.

“It became basically impossible to borrow money even though interest rates were low, the flow of credit slowed down a lot. Mortgage markets were broken. Financial markets suffered because of the contagion of derivatives,” said Simons. “It was financially generated. It wasn’t so much the Fed tightening policy by raising interest rates, but the market shut down because of a lack of liquidity and trust. I don’t think we have that now.”

That recession was longer than it seemed in retrospect, Swonk said. “It started in January 2008. … It was like a year and a half,” she said. “We had a year where you didn’t realize you were in it, but technically you were. …The pandemic recession was two months long, March, April 2020. That’s it.”

While the potential for recession has been on the horizon for awhile, the Fed has so far failed to really slow employment and cool the economy through the labor market. But layoff announcements are mounting, and some economists see the potential for declines in employment next year.

“At the start of the year, we were getting 600,000 [new jobs] a month, and now we are getting about maybe 250,000,” Zandi said. “I think we’ll see 100,000 and then next year it will basically go to zero. … That’s not enough to cause a recession but enough to cool the labor market.” He said there could be declines in employment next year.

“The irony here is that everybody is expecting a recession,” he said. That could change their behavior, the economy could cool and the Fed would not have to tighten so much as to choke the economy, he said.

“Debt-service burdens have never been lower, households have a boatload of cash, corporates have good balance sheets, profit margins rolled over, but they’re close to record highs,” Zandi said. “The banking system has never been as well capitalized or as liquid. Every state has a rainy day fund. The housing market is underbuilt. It is usually overbuilt going into a recession. …The foundations of the economy look strong.”

But Swonk said policymakers are not going to give up on the inflation fight until it believes it is winning. “Seeing this hawkish Fed, it’s harder to argue for a soft landing, and I think that’s because the better things are, the more hawkish they have to be. It means a more active Fed,” she said.

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