Monetary and fiscal policy moves in advanced economies risk pushing the world towards global recession and prolonged stagnation, inflicting worse damage than the financial crisis of 2008 and the COVID-19 shock of 2020, the UN Conference on Trade and Development (UNCTAD) has warned in its Trade and Development Report 2022.
- Rapid interest rate increases and fiscal tightening in advanced economies combined with the cascading crises resulting from the COVID-19 pandemic and the war in Ukraine have already turned a global slowdown into a downturn with the desired soft landing looking unlikely.
An imprudent gamble, and other highlights: In a decade of ultra-low interest rates, central banks consistently fell short of inflation targets and failed to generate healthier economic growth. Any belief that they will be able to bring down prices by relying on higher interest rates without generating a recession is, the report suggests, an imprudent gamble.
- At a time of falling real wages, fiscal tightening, financial turbulence and insufficient multilateral support and coordination, excessive monetary tightening could usher in a period of stagnation and economic instability for many developing countries and some developed ones.
- This year’s interest rate hikes in the United States are set to cut an estimated $360 billion of future income for developing countries (excluding China) and signal even more trouble ahead, the report warns.