Monetary policy moves in advanced economies risk pushing the world towards global recession and a prolonged stagnation, inflicting a more severe damage than 2008 financial crisis and the Covid shock, UN Conference on Trade and Development (UNCTAD) said at the beginning of October.
Rapid interest rate increases and fiscal tightening in advanced economies, combined with the crises resulting from the Covid pandemic and Ukraine conflict, have already turned a global slowdown into a downturn with the desired soft landing looking unlikely, said a UNCTAD report titled “Trade and Development Report 2022”.
In a decade of ultra-low interest rates, central banks consistently fell short of inflation targets and failed to generate healthier economic growth, the report said, adding that any belief that they can bring down prices by relying on higher interest rates without generating a recession is an imprudent gamble. At a time of falling real wages, financial turbulence and insufficient multilateral support and coordination, excessive monetary tightening could usher in a period of stagnation and economic instability, it said.
UNCTAD expects the world economy to grow 2.5% in 2022, and the growth in 2023 is expected to decelerate further to 2.2%. The synchronized slowdown is hitting all regions but is ringing alarm bells for developing countries, where the average growth rate is projected to drop below 3%, further squeezing public and private finances and damaging employment prospects, said the report.