At the same time, the risk of slowing growth and high inflation, or stalling inflation, will hit the global economy this year as Russia’s war against Ukraine exacerbates the recovery from the coronavirus pandemic, according to research by the Financial Times.
Increasing price pressures, falling output expansion and sagging confidence will all create drag for most countries, according to the latest Brookings-FT tracker. The latest Brookings-FT.
As a result, policymakers will be left with “grim difficulties,” according to Eswar Prasad, a senior fellow at the Brookings Institution.
The IMF this week is expected to lower its forecasts for most countries as finance ministers and central bank presidents convene at spring meetings of the fund and World Bank to discuss how to respond to the dire economic outlook.
Policymakers must figure out how to deal with rapidly rising prices and the risk of interest rate hikes when debt levels are already high.
Kristalina Georgieva, Managing Director of the IMF, on Thursday called the war in Ukraine “big failure“For the global economy.
Prasad said there is a risk that 2022 could become “a tense period of geopolitical restructurings, continued supply disruptions and volatility in financial markets, all of which are based on the backdrop background of rising inflationary pressures and limited policy maneuverability”.
The Brookings-FT Tracking Index for the Global Economic Recovery (Tiger) compares indicators of real activity, financial markets and confidence with their historical averages, for both the global economy and countries individually, capturing the extent to which the data in the current period is better or worse than usual.
On a biennial streak, the composite shows a marked loss of growth momentum from the end of 2021 in both advanced and emerging economies, with confidence also falling from peak and activity financial markets have fallen recently.
According to Prasad, each of the three major economic blocs in the world faces significant difficulties. While spending remains strong in the US and the labor market has returned to its pre-pandemic state, inflation severely hampers the Federal Reserve’s price-stabilizing mission. Price growth accelerated to a 40-year high of 8.5% in March.
“The Fed runs the risk of really losing control of the inflation report and could be forced to tighten even more than it has signaled, raising the risk of a marked slowdown in growth in 2023,” Prasad said. “.
China’s problems stem from desire stick with zero-Covid strategy following an increase in cases of the more infectious Omicron variant. Strikes, such as the severe restrictions in Shanghai, threaten consumer spending, investment and manufacturing, while the potential for monetary policy easing once again increases risks long-term for financial stability.
China is expected to report first-quarter gross domestic product figures on Monday and they are widely expected to show that Beijing faces a tough challenge in hitting its growth target. 5.5% throughout this year.
For Europe, which has suffered the most from the Ukraine conflict and is struggling to reduce its reliance on Russian energy imports, confidence levels have plummeted.
There are no easy policy solutions, Prasad said, and the willingness to act appears in short supply.
“Keeping the global economy on a reasonable growth trajectory will require coordinated actions to fix the root problems, including measures to limit disruptions caused by the pandemic, steps to reduce geopolitical tensions and targeted measures like infrastructure spending to boost long-term productivity rather than just boost short-term demand,” he said.
