Sleepwalking Into a Global Recession
The current wave of interest-rate hikes has slowed inflation but also popped several asset bubbles, potentially triggering additional debt and financial crises. While a prolonged economic downturn may be inevitable, the G7 countries can soften the blow by coordinating their fiscal and monetary policies.
HONG KONG – The International Monetary Fund and the World Bank held their Spring Meetings in Washington this month amid growing fears of a prolonged worldwide recession and following a series of reports predicting that global economic growth will continue to slow.
Earlier in April, a World Bank book estimated that global GDP growth will fall below 2% this year and increase to 3% in 2024, before weakening to 2.2% by 2030, down sharply from the 3.5% average rate in the 2000s. The Bank foresees a “prolonged period of weakness” for the global economy following further declines in investment and productivity.
The IMF’s latest World Economic Outlook also warned of historically low growth, increased financial risks, and a “rocky recovery” ahead. The current wave of monetary tightening has slowed inflation but also popped several asset bubbles, triggering an interest-rate risk shock that wounded borrowers and fragile financial institutions. In one extreme (but plausible) scenario examined by the authors, higher interest rates and credit-supply shocks will pull down global growth to 1% this year.
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