The UN Warns That We're Headed Toward a Global Recession

This bad money news could have an impact on your finances.

The United Nations Conference on Trade and Development (UNCTAD) recently released a troubling report that contained a dire warning. The report indicated that unless fiscal and monetary policies in some of the world's most advanced economies change quickly, we could be headed toward a global recession.

Not only that, but the economic crisis could be worse than the one that occurred in 2007.

Here's why the UN believes a global recession is imminent

According to the U.N., the threat of a recession is imminent because central banks in the U.S. and other economically advanced nations are implementing policies designed to fight inflation that could cause crises -- especially in developing economies.

"Excessive monetary tightening and inadequate financial support could expose developing world economies further to cascading crises," the UNCTAD said.

The agency warned that as central banks raise interest rates to fight inflation, indebted countries may face a debt crisis that has ripple effects worldwide. The U.N. expressed very serious concerns about the likely outcome of the current fiscal policies, indicating the cost could be high in terms of economic stability and productivity.

Specifically, UNCTAD estimated that global economic growth could drop to 2.2% in 2023, which would "leave GDP below its pre-COVID pandemic trend and cost the world more than $17 trillion in lost productivity."

The U.N. also indicated that there are other problems as well, besides just rising interest rates. Specifically, the war in Ukraine, supply-side shocks, and reduced confidence among investors and consumers have also been contributing to a global economic slowdown -- and these trends are unlikely to turn around anytime soon.

Climate stress is also intensifying, which is likely to do lasting damage to vulnerable areas without the funds to pay to repair and rebuild when disaster strikes.

All of this adds up to a lot of bad news, which is why the U.N. thinks an upcoming global recession is imminent and likely to be worse than the last major worldwide financial crisis.

Should you be worried about the UN's warnings?

Although the UN's warnings are dire, the agency report did make clear that it may not be too late to change course.

“There is still time to step back from the edge of recession,” UNCTAD chief Rebeca Grynspan said. "This is a matter of policy choices and political will."

Of course, central banks may not heed this warning. And there's plenty of indicators that bad economic times are coming. Worrying about this isn't productive, though, since you can't personally change fiscal policy.

What you can and should do, instead of worrying, is prepare. You need to recession-proof your finances. That means having a generous emergency fund and developing job skills and a strong professional network in case your employment is affected. You should also work on debt paydown to reduce ongoing costs if you have credit cards or other high-interest debt, and make sure you can live on a budget.

If you engage in these smart fiscal practices, hopefully even a global recession won't have a lasting impact on your financial future.