Editorial: Recession is looming, so be careful

Earlier this month, the World Bank said in a report that the global economy could be headed for recession next year as central banks aggressively raise interest rates to curb persistent inflation. I warned you. The world’s three largest economies, the United States, China and the eurozone, have already slowed sharply this year, and “even a modest hit to the global economy next year could plunge it into recession,” the report said. I’m here.

Central banks around the world have hiked rates this year with a degree of synchronicity not seen in the last 50 years, and the trend is likely to continue next year. But the World Bank says rate hikes and other policy measures alone may not be enough to bring global inflation back to his pre-COVID-19 pandemic levels. If supply chains continue to face bottlenecks and the labor market remains tight, central bank rate hikes could keep global core inflation, excluding energy, at around 5% next year, well below pre-pandemic levels. That’s nearly double the five-year average. .

The report assumes a worst-case scenario of slowing global GDP growth to 0.5% next year or contracting by 0.4% per capita, meeting the definition of a global recession. The World Bank has warned that if accompanied by a series of financial crises, it could have devastating long-term consequences for some emerging market and developing economies.

The World Bank’s warning comes after the IMF said in July it feared some economies could slip into recession next year, with the global economy facing downside risks from high inflation and Russia’s war in Ukraine. may continue to face In addition to the World Bank and IMF, Oxford Economics, Fitch Ratings and several others have also lowered their forecasts for global GDP growth next year, while Barclays PLC forecasts zero growth for the global economy. increase.

The global economy could be caught in a vicious circle, from fighting inflation to raising interest rates to stalling economic growth. The extent of the economic slowdown could prove unbearable for some economies. Moreover, concerns remain that the short-term pain caused by this year’s rate hikes will lead to long-term harm amplified by persistent geopolitical risks around the world.

Investors expect central banks to raise the global monetary policy rate to about 4% next year, doubling last year’s average, so the World Bank said central banks and policymakers should keep inflation in check. Efforts should be made to avoid triggering a global recession, he said. Central banks must clearly communicate policy decisions to anchor inflation expectations and reduce the amount of tightening needed, the report said. Fiscal officials also said the withdrawal of supportive measures would need to be carefully coordinated while ensuring consistency with monetary policy objectives, and policy makers should take steps to boost global supply by added that it needs to join the fight against inflation.

Last week, Taiwan’s central bank raised the discount rate by 12.5 basis points to 1.625% for the third consecutive quarter, up 50 basis points from March. Taiwan’s move comes after a string of central bank meetings on tightening monetary policy. However, Taiwan’s rate hike pace remains unshaken despite the more hawkish US Federal Reserve (Fed), which has hiked rates by 300 basis points so far this year. has become more cautious than other major central banks.

With the Federal Reserve’s aggressive action likely to continue, and most other central banks likely to follow suit, economies around the world are facing the double pressure of slower growth and imported inflation. It may be difficult to avoid. Taiwan should pay close attention to changes in the macroeconomic environment, take precautionary measures, and adjust policies as soon as possible.

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