Economic Shock! Monetary Tightening Slows Global Growth

Economic growth momentum showed weakness and decline and growth forecasts for 17 countries in G20 were downgraded. (Photo via pixabay.com)

The global economy could be in a downturn. Countries around the world have raised interest rates to combat inflation, and monetary tightening has reached the largest extent in 50 years. The three major economies of the United States, China, and the eurozone have experienced the sharpest slowdown since 1970. The GDP growth rate will be greatly affected, and the global economy will fall into recession.

Taipei, Taiwan (ADH News) – Are you feeling economic weakness? The latest research report of the World Bank pointed out that under the monetary strategies of various countries to fight inflation, the central bank has successively raised interest rates, and the monetary tightening has reached the largest in 50 years, which has caused great pressure on economic growth. The three major economies of the United States, China, and the eurozone are experiencing the sharpest slowdown since 1970, which is bound to hit the GDP growth rate next year and put the global economy into recession.

To combat global inflation, more than 80 central banks, led by the United States, are implementing monetary tightening policies. The move caused a slowdown in global economic growth and a drop in demand for financial commodities. Companies issued profit warnings and layoffs measures, and major financial institutions revised their growth rates. If the pace of interest rate hikes is not slowed down, the global economy will be sluggish, or even plunged into a devastating recession.

The implementation of monetary tightening and interest rate hike strategies may slow inflation, but synchronized tightening will increase the magnitude of the impact of countries’ economies on each other, and will also have long-term debilitating consequences for the economies of emerging markets and developing countries. Consumer confidence has fallen far more than in previous post-recession recovery periods, and any further shock will exacerbate the global downturn.

According to a probabilistic model put forward by Ned Davis Research (NDR), an independent investment research institute, the probability of a global recession is as high as 98.1%. Such a high probability only appeared during the financial crises in 2008 and 2009, and 2020 when COVID-19 hit. Therefore, economists infer that the proportion and risk of a severe global recession will continue to increase in 2023.

After the outbreak of the Russian-Ukrainian war in February this year, the economic situation has become more difficult. The Organization for Economic Cooperation and Development (OECD) in Paris, France, pointed out that the world is paying the price of the Russian-Ukrainian war, including the lack of energy and food supplies and the increase in inflation. Economic growth momentum showed weakness and decline. Growth forecasts for 17 countries in the Group of Twenty (G20) were downgraded.

The Russian-Ukrainian war has affected energy and food supply chains, increasing global inflation and making people’s livelihoods more difficult. (Photo via pexels.com)

Global economic growth in 2021 is mainly related to the tightening of monetary policies in various countries, which has prompted the stock market to climb all the way, and household financial assets have reached new highs for three consecutive years. Global financial assets grew by 10.4%, a double-digit growth rate for the third consecutive year, and a record high of 233 trillion euros.

Growth in the largest economy, the United States, is forecast to fall to 0.5% in 2023. Affected by the COVID-19 epidemic prevention policy, China’s growth rate forecast will be sharply revised down to 3.2% this year and 4.7% in 2023, which has fallen to the lowest since the 1970s. The decline in China’s growth rate has also led to a simultaneous decline in trade volumes in neighboring Japan, South Korea, and Vietnam, dragging down economic growth in these countries. The OECD forecasts that Germany, Europe’s largest economy, will decline by 0.7% in 2022, while the whole eurozone as will grow slightly by 0.3%. The forecast for global economic growth in 2023 has been revised to 2.2% from an earlier forecast of 2.8%.

Most of the 10 leading economists interviewed by the World Economic Forum believe that a global recession is inevitable and that real wages, adjusted for inflation, will continue to decline until 2023. The IMF said that the Russian-Ukrainian war and China’s continuous zero-clearing policy have greatly reduced economic momentum in the third quarter, and the economic growth rate has declined. By 2023, the recession will be more obvious.

The latest “World Economic Outlook” report of the International Monetary Fund also mentioned that more than one-third of the global economy will continue to shrink in these two years, and the inflation rate will gradually drop from 8.8% to 6.5% next year and 4.1% in 2024. However, if the Russian-Ukrainian war does not end and China’s economic growth does not improve, it will still affect the global supply chain and will lay huge uncertainties for world trade and economic activities.

Since COVID-19, the global economy has gone through a huge downturn, followed by the global inflation crisis, the outbreak of the Russian-Ukrainian war this year, and China’s unrelenting anti-epidemic policies, all of which have made the economic outlook even more severe. In the face of the next economic difficulties, countries around the world should think more carefully and formulate various policies carefully. In addition to stabilizing inflation, we should pay attention to the possible backseat of the tightening and interest rate policies on the economy. Try harder to reduce the proportion of recession and return to stable growth sooner.

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