Publication: Is a Global Recession Imminent?
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Date
2022-09
ISSN
Published
2022-09
Author(s)
Abstract
Global growth prospects have
deteriorated significantly since the beginning of the year,
raising the specter of global recession. This paper relies
on insights gleaned from previous global recessions to
analyze the recent evolution of economic activity and
policies and presents plausible scenarios for the global
economy in 2022–24. We report three major findings. First,
every global recession since 1970 was preceded by a
significant weakening of global growth in the previous year,
as has happened recently. Second, the global economy is in
the midst of one of the most internationally synchronous
episodes of monetary and fiscal policy tightening of the
past five decades. The policy actions in many countries are
necessary to contain inflationary pressures, but their
mutually compounding effects could have larger impacts than
envisioned—both in tightening financial conditions and in
steepening the global growth slowdown. Third, if the degree
of global monetary policy tightening markets now expect is
not enough to reduce inflation to targets, experience from
previous global recessions suggests that the additional
tightening needed could cause significant financial stress
and increase the likelihood of a global recession next year.
These findings imply that policymakers need to carefully
calibrate, clearly communicate, and credibly implement their
policy actions while considering potential international
spillovers, especially given the globally synchronous
withdrawal of monetary and fiscal policies. They also need
to pursue supply-side measures to overcome constraints
confronting labor markets, energy markets, and trade networks.
Citation
“Guénette, Justin Damien; Kose, M.Ayhan; Sugawara, Naotaka. 2022. Is a Global Recession Imminent?. EFI Policy Note;No.4. © World Bank, Washington, DC. http://openknowledge.worldbank.org/handle/10986/38019 License: CC BY 3.0 IGO.”