The Shocks of 2020-2023 and the Business Cycle

Abstract

The present research considers the impact of the four shocks of 2020–2022 on the world economy, with the main focus on cyclical processes. The first shock is considered to be the 2020 COVID-19 lockdowns, which were of non-economic origin and which interrupted the recovery phase, creating panic and a short-term liquidity squeeze. The second shock was created in 2020–2021 by the financial authorities of the world’s leading countries and the EU (as well as the IMF), which provided a unique financial stimulus for the economy in order to prevent a chain reaction of demand contraction. The third shock was related to the recovery in the commodity markets in 2021 and was expressed in an acceleration of inflation. Its consequence was, to a large extent, the turmoil in the U.S. and EU banking sector in March 2023. Finally, the shock of sanctions in 2022 perpetuated both the uncertainty for global capital accumulation in general and inflationary trends in particular.

Four shocks to the world economy accelerated the change of phases along with the number of their typical characteristics in the business cycle. At the beginning of 2023, the financial authorities of the U.S., EU, and other countries had to balance between curbing inflation and preventing recession using very cautious policy instruments.