As global economy slows, more challenges cast a shadow‎

Numerous reports indicated bleak indicators of a slowdown in the global economy in the coming year, pointing out that 2022 was a painful year for the global economy where a group of shocks is represented by the Russian invasion of Ukraine, the closures in China as a precaution for Covid-19, the real estate crisis, the tightening of the Federal Reserve’s policies, and the energy crisis in Europe, all of which led to a decline in global growth for this year to 3.1%. , which is much lower than the expectations of the recovery that strengthened the beginning of the year.

Opposite currents:

In the same context, the latest World Economic Outlook report issued by the International Monetary Fund indicated that high-frequency data indicate that the slowdown in global economic growth is becoming increasingly evident. The report warned that the prospects for global economic growth are facing a unique mix of adverse currents, including those resulting from the Russian invasion of Ukraine, interest rate increases to contain inflation, and residual effects of the pandemic such as general closures in China and disruptions in supply chains.

The report included a reduction in the Fund’s previous expectations regarding global growth next year to 2.7%, while it expected countries that contribute more than a third of global output to witness a contraction in part of the current or next year.

According to CNBC, inflation continued to overshadow earnings calls, however, the largest companies still have the ability to pass price increases on to customers, and many expect that to continue. But at the level of the economy as a whole, recent data has shown that major measures of sales and profits warn of a possible recession, and a survey conducted by the National Association for Business Economics, the largest international association of applied economists, strategists, academics and policymakers committed to implementing economics, showed a decline in sales of companies Which has not been this severe since the spread of the Corona virus in mid-2020 and is close to a level consistent with many previous recessions.

Central bank policies:

A comprehensive study by the World Bank warned last September that the world may be heading towards an economic recession in 2023 and a series of financial crises in emerging market and developing economies will cause them permanent damage, with central banks around the world simultaneous increases in interest rates to combat inflation. ..

The study notes that central banks around the world have raised interest rates this year with a degree of synchronization not seen in the past five decades, a trend that is likely to continue into the coming year. However, the current expected path to increase interest rates and other policy measures may not be sufficient to bring down global inflation rates to the levels that prevailed before the outbreak of the Corona pandemic. Investors expect the world’s central banks to raise basic interest rates to about 4% in 2023, an increase of more than two percentage points over average interest rates in 2021.

The study found that unless supply chain disruptions and labor market pressures recede, these interest rate increases may lead to a rise in the core inflation rate worldwide (excluding energy) in 2023 to about 5%, which is almost twice the average in 2023. The five years before the pandemic. According to the model on which the study was based, to reduce global inflation to target levels, central banks may have to increase interest rates by an additional two percentage points. And if these measures are accompanied by an increase in pressures in financial markets, the global GDP growth rate will decline to 0.5% in 2023, which is a contraction of 0.4% in terms of average per capita growth that meets the technical definition of a global recession.

Inflation treatment:

Returning to the recommendations of the International Monetary Fund, he says that despite mounting evidence of a global slowdown, policymakers must continue to give priority to containing inflation, which is contributing to a crisis in the cost of living, which is most harmful to the low-income groups. income and weak. As his report to the G-20 underscores, the macroeconomic policy environment is surrounded by an unusually high degree of uncertainty.

However, the need for fiscal and monetary tightening is likely to continue in many countries to reduce inflation and address debt vulnerabilities – and indeed further tightening is expected in many G20 economies in the coming months. He says that, however, these measures will continue to impose a burden on economic activity, especially in sectors sensitive to interest rate fluctuations, such as the housing sector.

Careful move:

The IMF indicates that the challenges facing the global economy are enormous, and the declining economic indicators indicate more challenges in the coming period. However, the world can, through cautious action in terms of policies and joint multilateral efforts, move forward towards achieving stronger and more inclusive growth for all.