Economists: Global Economy Approaches Recession

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Facts

  • The global economy is approaching a recession, according to a Reuters poll that saw economists cut growth forecasts for key economies as central banks keep raising interest rates to bring down high inflation.
  • Most respondents expect the relatively low unemployment within many of the 47 economies included in the poll to reduce the intensity and length of the recession. However, they also believe it will keep inflation elevated for longer.
  • Only six central banks out of 22 polled are expected to hit their inflation targets by the end of next year. This is compared to the 12 out of 18 surveyed by Reuters in July that responded similarly.
  • The European Central Bank is expected to raise interest rates by 0.75% on Thursday for the second time in a row. Some investors and economists have questioned how much further interest rates can be increased as households in the Eurozone continue to grapple with surging heating and mortgage bills.
  • Meanwhile, the US Federal Reserve is expected to increase interest rates by 75 basis points on Nov. 2 for the fourth consecutive time. Economists expect interest rate hikes to continue until inflation falls to around half its current level.

Sources: Reuters, and Finance.

Narratives

  • Pro-establishment narrative, as provided by The New York Times. Central banks need to raise interest rates to combat inflation by making money more expensive to borrow. By encouraging reduced consumption, rate hikes should result in fewer consumers and companies competing over the currently available supply of goods and services, thereby allowing price increases to moderate. It may be a blunt and even painful tool, but it's a necessary one.
  • Establishment-critical narrative, as provided by UNCTAD. Continued interest rate hikes will only plunge the world into a recession, severely exacerbate life for the world’s poorest, and fail to tackle the true source of the cost-of-living crisis. Rather than aggravating the deteriorating consumer and investor confidence, there needs to be more attention on supply chain shocks and the “undue advantage” taken by large multinational corporations that boost profits on the backs of some of the world’s poorest.